Why has Hewlett Packard lost half its stock value in recent months? Here are the business lessons to take away.
Hewlett Packard is a legendary company. Founded with $538 in 1939 by Bill Hewlett and David Packard in the proverbial Palo Alto garage, HP has grown into one of the largest companies in the world. They currently employ over 324,000 people and generated over $126 billion in revenues last year. Additionally, HP generates nearly $1 billion per month in operating income.
Despite their success, the stock price for HP has fallen dramatically in recent weeks. In February 2011 HP’s stock traded at nearly $50 per share. Recently, it closed as low as $23.60 per share. Why has the company lost more than half its value? Equity investments have suffered greatly due to the overall economic and financial picture, but much of the loss in HP stock isn’t due to that; it’s due to the company’s recent announcement that it is radically changing its business model. Nearly half of the loss in the stock price can be attributed to the short-term response of investors to this new strategy.
HP announced that it would leave the smartphone and tablet computer market as well as consider spinning off its existing personal computer manufacturing business. At the same time, it announced the acquisition of software company Autonomy for over $10 billion. HP is moving away from hardware and moving toward services, software and the Internet—this is a radical change for the company that this far, has not been well received.
There are many lessons for small business owners who undertake similar shifts in their respective strategies.
Lesson 1: Always assume that people important to you won’t understand what you are doing
Many influential people don’t agree with the new HP strategy. This is reflected in the stock price as well as the overall industry “buzz.” Other decisions that have worked for the company, such as transitioning away from testing and measurement equipment, were met with skepticism. Don’t let short-term reactions cloud your judgment.
Lesson 2: Make sure you have the right people working for you to lead the transition
Before his controversial departure last year, Mark Hurd had done an excellent job of leading Hewlett Packard through some difficult, strategic decisions. During his tenure as CEO, the company became number one in sales of desktop computers and laptop computers. It also increased its existing leadership position in InkJet and LaserJet printers. Leo Apotheker, the current CEO who is responsible for the strategic changes recently announced, was a long-term executive at SAP overseeing various divisions before becoming CEO. These types of executives possess different skill sets than entrepreneurs. Founders don’t always have the skills necessary to make large scale changes to their “babies” and execute them successfully. Having the maturity and business mindset to recognize your limitations and let others lead is critical.
