Renowned short-seller, Jim Chanos of Kynikos Associates informed the conference of his view that Hewlett-Packard Company (NYSE:HPQ) was the “ultimate value trap.”
Suggesting that a growth policy built on a foundation of acquisitions could very dangerous, Chanos said that Hewlett-Packard Company (NYSE:HPQ) was only succeeding in destroying value through its acquisitions, and of particular note was Autonomy.
Chanos likened HP to one of his most famous short trades – Kodak, and said HP was in declining businesses, and claimed “They’re hiding their R&D spending through acquisitions.” His view was that laptops will continue to lose share to tablets and other portable devices.
Though the stock is cheap going by many parameters, at just five times forward twelve months earnings, and with buybacks, yet the negatives far outweighed the positives.
We hunted up one of his presentations and here are some key facts on HP mentioned therein which serve to underpin his bearish stance on the company:
- Growth through acquisitions has not paid off:
- $36.9 billion spent on acquisitions (82% of FCF) since 2007
- Even so, LTM cash flow is down 7% from 2007
- Debt (1Q12) = $30 billion, up 70% from 1Q10
- Perspective: Compaq impairment, EDS restructurings, Palm write-off, Autonomy revenue implosion
- Businesses are struggling:
- PCs – LTM operating income down 5%
- Printers – LTM operating income down 28%
- IT Services – LTM operating income down 23%
- Servers/Networking – LTM operating income down 19%
- Lack of direction: since 2006 the company has seen three CEOs.
Chanos had negative things in general to say about the PC industry. He notes that most people in the room were carrying tablets, which is only increasing further. In the past Chanos has singled out Dell Inc. (NASDAQ:DELL) specifically.
Shares of HPQ tanked on Chanos’ comments, but now are up 2.60% at the time of this writing.