SAN FRANCISCO (AP) — Hewlett-Packard Co.’s stock recovered some of its recent losses Friday as investors applauded a change of heart about the technology conglomerate’s previously announced plan to shed its personal computer decision.
THE SPARK: The about-face announced late Thursday alleviated concerns that HP would compound its myriad of headaches by selling or spinning off a division that accounts for about one-third of the company’s revenue. HP announced the plan in August under its then-CEO Leo Apotheker, who lost his job last month largely because Wall Street thought getting rid of the PC business was a bad idea.
New CEO Meg Whitman reversed course after realizing that spinning off the PC division would be expensive and threaten to create new sales challenges for other product lines, such as computer printers and computer servers.
The change of heart also reduced the risk of a two-notch downgrade in HP’s credit rating at Fitch. In a Friday note, Fitch warned a one-notch downgrade remains a possibility because of HP’s deteriorating financial performance and the debt that it has been taking on to finance stock repurchases and recent acquisitions, such as its recent $10 billion purchase of business software maker Autonomy. The credit rating agency said it hopes to make a final decision shortly after HP’s next quarterly earnings report, which is scheduled to be released Nov. 21.
Another credit rating agency, Moody’s Investors Service, said it is also is considering a downgrade despite HP’s decision to hold on to its PC business. The review will focus on HP’s efforts to accelerate its growth and widen its profit margins.
THE ANALYSIS: Sterne Agee analyst Shaw Wu said he is convinced Whitman made the right decision to keep the PC division, which he described in a research note Friday as an essential part of the company’s overall business.
But HP still must find a way to sell more PCs than it has been in recent quarters. Wu says that won’t be easy as Apple Inc.’s iPad other computer tablets become staples in households and businesses.
HP had tried to counter the iPad with a tablet running on an operating system that it picked up in its 2010 acquisition of Palm Inc., but Apotheker dumped the product after less than two months on the market. HP now plans to concentrate on making tablets that will run on Microsoft Corp.’s next version of Windows.
Wu said he thinks HP should at least take another stab at developing a tablet running on the Palm software, webOS. Failing that, he believes HP should sell webOS to another leading device maker, such as Samsung or HTC.
“We remain concerned with execution risk and competitive pressures,” Wu wrote. He maintained his “neutral” rating on HP’s stock.
SHARE ACTION: HP’s shares gained 97 cents, or 3.6 percent, to $27.96 in Friday’s late afternoon trading. The stock remains below its $29.51 price when Apotheker announced the plan to get out of selling PCS. HP’s shares have ranged from $21.50 to $49.39 in the past year.