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A HP Invent
logo is pictured in front of Hewlett-Packard international offices
in Meyrin near Geneva in this August 4, 2009 file photograph. (Credit: Reuters/Denis Balibouse/Files) |
(Reuters) -
Shares of Hewlett-Packard slumped by more than 20 percent to a six-year low on
Friday as investors wiped about $16 billion off the market value of the world's
biggest PC maker in a resounding rejection of its plan for a major shake-up.
Investors
also appeared to lose confidence in Chief Executive Leo Apotheker after a
flurry of HP announcements on Thursday including an $11.7 billion acquisition
offer, a shuttering of its mobile efforts and the potential spin-off its PC
business.
This was on
top of disappointing financial guidance for the third quarter in a row. HP may
also be risking future PC sales as its customers could flee to rivals like Dell
Inc in the uncertainty, one analyst said.
"They're
doing too many things at the same time," said Sterne Agee analyst Shaw Wu.
Even if it
makes sense in the long term, HP should not have told the world it was thinking
of getting rid of its PC business, which brings in 16 percent of its profits,
Wu said.
"Why
would anybody want to do business with them if it's up for sale," he said.
"To have this in limbo for 12 months is going to be pretty material."
On top of
this, investors worried that HP's offer of nearly $12 billion for British
software company Autonomy Corp was too high and questioned why it was giving up
so soon on the mobile business it bought for $1.2 billion from Palm Inc, Wu
said.
HP shares
fell as low as $22.76 on Friday making it the biggest loser on the New York
Stock Exchange. Before the announcements its shares had closed at $31.39 on
Wednesday. Investors fled to rivals like Dell, pushing its shares up nearly 3
percent, as it is expected to profit from HP's chaos.
"There's
not a lot of confidence in (Apotheker's) management," said Wu, noting that
he had to lower guidance every quarter since he joined HP. "This is just
further proof,"
At least
two brokerages downgraded Palo Alto, California-based HP, and five cut their
price targets, mainly citing uncertainty and expenses related to the
restructuring.
"Last
night HP may have eroded what remained of Wall Street's confidence in the
company and its strategy," Needham & Co said in a research note.
Gleacher
& Co analyst Brian Marshall cut his price target for the stock to $39 from
$50 saying he "materially underestimated the magnitude and timing of this
metamorphosis."
He said
however that HP "is undergoing a sound strategy transformation by focusing
on high-growth, high-margin opportunities in the enterprise/commercial
markets."
With a
forward 12-month price-to-earnings ratio of 5.6, the company is trailing its
peers, including Dell, Apple and IBM according to Starmine SmartEstimate.
Before
Thursday's news HP's stock had already lost nearly a fifth of its value since
it reported quarterly results in May.
HP said it
has already stopped production of its WebOS-based devices like its TouchPad
tablet, which failed to attract buyers.
Cypress
Semiconductor Corp -- the main supplier of touch controllers for TouchPad --
will also hurt if the company pulls the plug on the product, brokerage Collins
Stewart said.
Cypress' shares
fell 1 percent to $16.93 on Friday.
HP has been
struggling with its once hugely popular PC business, as niftier gadgets like
Apple's iPad have eaten into its business.
Thursday's
weak forecast follows smaller rival Dell's lowered revenue outlook earlier this
week that dragged down both stocks.
Both
companies have been venturing out of traditional comfort zones and into
enterprise solutions and services, but continuing soft sales have been a
constant source of trouble.
Brokerage
Robert W. Baird said HP is no longer a "safe haven" stock and expects
it to lose market share.
HP's
decision to spin off the PC business reflects commoditization, as consumers
change the use of computers, and this may hurt Intel, the world's largest
supplier of PC chips, brokerage Nomura said in a note.
"A
reversal in average selling prices would remove a key revenue driver over the
last six quarters (for Intel)."
(Additional
reporting by Rachel Chitra in Bangalore; Editing by Don
Sebastian, Joyjeet Das, Dave Zimmerman)
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