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