HP's $8 billion loss on EDS purchase makes webOS look like a drop in the bucket | webOS Nation
 
 

HP's $8 billion loss on EDS purchase makes webOS look like a drop in the bucket 26

by Derek Kessler Wed, 08 Aug 2012 6:13 pm EDT

HP's $8 billion loss on EDS purchase overshadows webOS losses

HP's getting really good at burying bad news under mundane announcements. Today's news came in the form of a press release detailing organizational changes for the tech giant's Enterprise Services Company plus an increase in their Q3FY12 Non-GAAP out- holy mother of Palm, you're writing down $8 billion in value of Enterprise Services?

The loss comes in the form of a "non-cash pre-tax charge for the impairment of goodwill", i.e. HP's overvalued the worth of the Enterprise Services Company, a division of HP created by the 2008 purchase of EDS for $13.9 billion. The reason for this loss, according the release, are "the recent trading values of HP's stock, coupled with market conditions and business trends within the Services segment." In other words, Enterprise Services has proven to be a drag on HP's stock and the division is not performing well.

It's worth noting that this loss technically is only on paper and should only be a one time event. But it's also worth noting that this only-on-paper loss was influenced by very real events and trends in the very real world. HP may be the second largest enterprise services company in the world, but that doesn't mean they're doing a good job at it. The $8 billion loss shows that despite HP's hopes for the EDS purchase, it has not at all panned out as well as they had hoped over the last four years. In fact, since the EDS purchase HP's share value has fallen by more than 60%, erasing nearly $60 billion in shareholder value.

Amusingly, the market seems to be taking the loss in stride and instead is focusing on HP's raising of their outlook for the coming quarter, expecting earnings of $1.00 per share, up from $0.94 to $0.97 a share. The stock price of HPQ is up four cents in after hours trading, adding to today's gain of $0.45 and bringing the share price to $19.45.

The apparent faltering of Enterprise Services is another shot in the foot for HP, who has been banking on success in the services division to sustain the company into the future. It's part of the reason why Leo Apotheker wanted to split HP into two companies, one focused on services, the other on consumer goods. HP's Personal Systems Group is the world's largest manufacturer of laptop and desktop computers, but it's a business with narrow margins and under increasing pressure from portable computing devices like tablets and smartphones. Come to think of it, that's why HP bought Palm; so they could secure a foothold in the growing and profitable mobile devices market. $3.3 billion later, that contingency plan didn't go as planned either, eh?

Source: HP

26 Comments

good grief HP has to be the most chronically inept major corporation in the world. They've "managed" away $60 billion in value? six-ty. billion. dollars.

that's a 6 followed by TEN zeros. $60,000,000,000

~13.86!

HP seems to be in the habit of making bad buys like Palm.

Bad buys, or poor strategy and execution of those buys?

Bad, overpriced buys.

No. Bad buys and paying too much when they do. Palm was never going to do what they needed it to do. It simply didn't have the following and required too much money.

Palm wasn't a bad buy. It merely suffered from royally (messed up) execution from a marketing standpoint. It most definitely provided HP what they needed to be a serious player in the mobile segment.

Palm provided a great operating system, but products that were not what what was being demanded by the consumer (slider keyboard vs. touchscreen slab phone), overpriced product (TouchPad priced to go toe-to-toe with an iPad2 but with build quality, specs and performance inferior to the original iPad) and allowing over a year to go by with no device upgrade options for hundreds of thousands of users on a major carrier (Sprint)

Palm in and of itself was not a bad buy. If the BOD didn't execute Hurd they might be well past WInPhone and edging out RIM. Instead we got Lying Leo and his total blunder into Services that cost HP 20% of its stock price in one day.

If this doesn't put a Fire under them to revive Phones and Tablets. I'm not sure they will be around in 5 years.

+1

When you buy a company that has a starting mobile OS (at purchase time webOS was not even 2 years old) you don't buy it to rescue you from all your problem in less than 2 months... it's a long term commitment... come on, not even a year...

Just to keep the timeline straight, HP bought EDS before Leo Apotheker became CEO. Further, HP had been selling Services for many years before buying EDS.

The purchase of EDS was motivated by EDS's strength in the Services industry; they kept beating out HP. So the feeling was probably, "If you can't beat 'em, buy 'em!"

Sadly, after buying EDS, HP didn't seem to spend any time learning the EDS way. If you run EDS services the way you ran HP Services, I think you need to expect HP results. So if the question is "Did HP overpay for EDS?" the answer is "No, they just forgot to use what they paid for."

Seems like a pattern for HP.

Just another good reason why Leo deserved to be a the top of that worlds worst CEOs list.

That "contingency plan" of buying Palm was bungled so poorly by HP that college business management students will be doing case studies on it. Even with the multiple CEOs and the "acquisition time" of palm, HP could have funneled a little more than minimal resources in to former palm to produce real viable products (Pre3). Hell, its almost Business101. Instead, HP built WebOS hardware that no one really wanted (Pre2 & Veer) and they overpriced a mid-level entry (Touchpad) and had unrealistic expectations about the market (and product acceptance).

The really sad part is that it seems like no one at HP got the point when all those fire-sale TPs sold in <48 hours. It wasn't the fact that they had WebOS that was holding people back from buying them, it was the price. I don't think that its much of a stretch to say that they could have sold millions of TPs if they would've only priced them reasonably ($200 & $250).

Nobody knows what they could have done, it's only known what they did do.

The Touchpad was not a $200 device. It was priced the same or less than every other tablet on the market at the time.

At the beginning of August, 2011, the price with discounts was $350 for the16 gig.

yes, but it was nearly impossible to actually get one at that price. Even on the eve of Black Thursday, if you wanted to just go out and buy a Touchpad you were going to pay $500 for a 32GB. I agree though, a better price point would have done wonders. $349 for the 16GB, $429 for the 32GB would have been about right.

that's selling at a loss and they NEVER would have done that. If they had to sell at a loss they'd never have bought Palm

HP was a huge failure in the mobile market before Palm. Remember the iPaq (shudders)? My MD got one as a free sample and even so gave it up in a week, while I used my Tungsten till it was replaced by a phone.

HP doesn't seem to have realised that getting into the mobile market was going to eat up cash as it was a mature market and they would need a culture change to adapt to it. Nokia and RIM are now eating cash and shrinking as they try to catch up lost ground. It seems that HP simply wasn't committed, unlike Samsung. They didn't know whether they wanted to be a company that produced a range of mobile systems, or a services company. Buying EDS looks like it was a huge mistake and a distraction; EDS could have been left to fail and then they could have had bits of the carcass. If the $8 billion they turn out to have lost on EDS could have been invested in making a good, solid phone line, by now they would be flattening Nokia and RIM.

Yes there were terrible design decisions - the Veer being one of them. It would have been better to refresh the innards of the Pre 2. But the biggest mistake, I feel, was failing to understand that the US market is all about carriers, and to realise that, just as they spent years loving the printer channels, they needed to spend serious cash on the carriers.

geez, lay off the Veer. It's a solid phone and it works well. Tiny , but solid. HP made lots of mistakes, including launching the Veer before the Pre3, but it is still a good phone.

again, a marketing decision. bad marketing can kill any product or company.

Don't know what you guys were thinking, but in case you didn't read it, Windows Phone shipped 5.1 million handsets last quarter and they're still in a somewhat distant fourth place.

If memory serves me correct, HP and Palm combined didn't sell 5 million Pre, Pre Plus, Pixi, Pixi Plus, Pre 2, Veer, Touchpads, and Pre 3 devices combined in what....TWO YEARS? There's such a disconnect in the fact that you guys slag HP for doubling down in the "low margin" PC market - where they excel - and wanted them to pour way more cash reserves into the NO MARGIN phone and tablet market, where they've never succeeded.

Yes, I said NO MARGIN. 99+ percent of the profit in the space is made by Apple and Samsung. Everybody else is treading water and seeking refuge in territories that Apple and Samsung aren't ruling (e.g. Africa). WebOS is a great OS and fun as hell to use, but it is bane to any company trying to make money. HP's mobile efforts would actually be NEGATIVE margin because they'd have to spend billions setting up a content ecosystem to compete with Microsoft, Apple, and Google, then sell every piece of hardware at cost or below.

You think the 27,000 people they've recently laid off is bad? The cuts would be worse if they had a "bold" CEO that continued to pour billions into WebOS with no endgame for profitability. For what?

As a former EDS employee, and there are a lot of us, I'm not feeling too bad for them. I guess this is what the ex-Palmers are going through as well, probably even more so. To see company A (HP) buy Company B and C. (EDS and palm) for buckets of money, then so casually hit the delete button on something you've worked very hard for...bites.

it is soooo funny to read all these comments, bashing how a bad buy Palm was for HP (I am not saying they haven't overpriced it, probably they did at the price paid), when it is a clear pattern, that HP buys a company, only to screw things totally in a very short time span.

I will not argue, if webOS was the best mobile OS out there - yet I havent came across a SINGLE person, be it IT pros, or end users, who wouldn't be MIGHTY impressed with it - after discussing it's architecture (IT pros), or after demoing the user interface/experience and overall ergonomics. Some of them, hardened fans of Android or iOS. It is a phone OS, that handles as fast and conveniently as a desktop OS. It truly does.

one thing is sure as hell, and demonstrated over and over again: marketing and decision making, at highest levels in both organizations, was.... I Cannot even say enough how shitty it was. If you happen to come across a big city waste treatment plant, that's how shitty it was.

No disrespect. Palm/webOS being a bad buy for HP doesn't have a lot to do with webOS. More with the fact, that no one is succeeding aside from iOS and Android right now. Not Blackberry. Not Windows Phone. Not Bada. Not webOS.....nobody. It's a hyper-competitive and mature market.

There's no reason for HP to waste countless billions trying to land a third slot that may not exist. Microsoft has every reason.

That's really nice of you to say. I'm excited about seeing the site take off, and all the new people coming on board! I'm also really interested in getting direction from the people using the site, and growing in ways they want to grow.

making money online

So think about this. EDS was a thriving, successful company. HP purchased it to boost HP's existing, unsuccessful services division. Suddenly the old EDS (now named Enterprise Services) is underperforming and not worth what HP paid. Hmmm...

This is not a case of HP buying a bad company. This is HP mis-managing a formerly great company. No two ways about it.

HP might be using the modern marketing tactics, but it should also concentrate on enhancing the quality of its customer services.
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