HP sinks as investors flee business revamp

HP sinks as investors flee business revamp

Stock Market Predictions

NEW YORK/BANGALORE (Global Markets) - 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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HP names Whitman CEO, Apotheker out

HP names Whitman CEO, Apotheker out

Stock Market Predictions

SAN FRANCISCO (Global Markets) - Hewlett-Packard Co named former eBay Inc Chief Executive Meg Whitman its president and CEO, replacing the harshly criticized Leo Apotheker in a bid to restore investor confidence in the iconic Silicon Valley company.

The decision was made without a formal CEO search and piled renewed criticism on the board, which investors have blamed -- at least in part -- for the storied company's recent missteps.

Chairman Ray Lane, who becomes Executive Chairman with a mandate to help Whitman run a sprawling $120 billion empire with over 300,000 employees, tried to assure disillusioned investors by saying HP is making a fresh start with a new CEO and -- crucially -- a virtually revamped board of directors.

Lane vowed that the days of board dysfunction -- the wire-tapping scandal, the firing of Mark Hurd after a sexual harassment probe, and the hiring of Apotheker -- were over.

The board works well together, he said.

"It's amazing how they challenge the management team, challenge each other," Lane said in an interview. "They are smart, they bring great insight to the table and I think we make good decisions."

Analysts had speculated that Apotheker's departure might presage a backtracking on major decisions taken during his 11-month term and announced -- back to back in haphazard fashion -- on August 18. But HP reassured investors on a conference call the board will not reverse course.

"I don't think we ought to be going back in history. This board did not select Leo. This is not the board that was around for pretexting," Lane said, referring to the scandal in which HP hired investigators who impersonated its board members and journalists to obtain their phone records.

"This is not the board that fired Mark Hurd," he noted. "We are embarrassed about the communications of decisions that could have been done much better. But we carefully considered the decisions made. It is our operating execution that needs to improve."

Whitman, an Internet retail expert with a mixed track record, is not an obvious choice to revive HP, analysts said. The failed California gubernatorial candidate transformed eBay from a few dozen employees in 1998 into a global Internet retail powerhouse, but the final years of her reign were marked by sputtering growth, intensifying Wall Street criticism and a string of unwise acquisitions, including of Skype.

She has been an HP director about eight months. While her elevation surprised many with its seeming hastiness -- for the second time, internal candidates such as enterprise chief David Donatelli were passed over -- Apotheker's ejection had been a matter of time.

He becomes the third straight HP CEO shown the door.

"Some might be saying maybe Meg Whitman isn't the right person, either. She's not a hardware person," said Auriga analyst Kevin Hunt. But HP "just needs someone to set the direction."

Defending her track record, Whitman said as head of eBay she had been a major purchaser of HP enterprise products.

"So I actually understand this space relatively well," she told Global Markets in an interview. "What I bring to this table is leadership, management skills, strategic vision, communications and an execution orientation to deliver the result."

Whitman said HP remained committed to completing a review of its PC division before the year ends, and expected to close the pricey $12 billion acquisition of British software maker Autonomy Corp Plc as planned.

HP's shares closed down 4.8 percent at $22.80, wiping out much of Wednesday's 6.6 percent gain.

"We would view any decision not to conduct a comprehensive search of internal and external candidates for a permanent CEO role as unsatisfactory and unnecessarily hasty," Sanford Bernstein analyst Toni Sacconaghi, who has been openly critical of HP's board, wrote in a note earlier on Thursday.

Lane, however, fired back by saying Whitman was handpicked for her communication, people and execution skills, while Apotheker fell short on several fronts.

Lane himself will also be taking on a bigger role in the company as executive chairman.

"I am here to help Meg execute on the business," Lane said. "I will be standing behind her and I will be working in areas that maybe I can help with a little more than she can do herself."

QUESTIONS?

In less than a year on the job, Apotheker, formerly SAP AG CEO, slashed HP's forecasts for three straight quarters and struggled to reverse a 50 percent plunge in the share price.

The storied Silicon Valley computer maker is fighting to restore its crumbling credibility. Whitman has to galvanize growth at a company that gets more than a third of its revenue from a slowing European economy, and is struggling to offset sliding PC revenue with services and software.

"We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead," said Lane.

Whitman's record at eBay came under scrutiny during her failed campaign for California's governorship. Analysts question whether her stewardship of eBay prepared her to steer a sprawling enterprise and computer giant.

The billionaire is credited with catapulting eBay into the upper echelons of a then-nascent e-commerce arena, and taking it public. But critics note she pushed hard to acquire Internet telephony service Skype, beginning a long and ultimately fruitless attempt to wring value from it. EBay eventually unloaded it, and it ended up with Microsoft Corp.

Her successor, John Donahoe, spent years engineering a turnaround and trying to rekindle stalled growth.

"While we believe she has proven to be a very capable manager helping grow eBay from a start-up into one of the largest Internet companies, we think an ideal candidate for HP should have extensive experience in the enterprise market," Stern Agee analyst Shaw Wu said in a client note.

Better choices would include HP enterprise chief Dave Donatelli and PC head Todd Bradley, two names that had also made the rounds in Silicon Valley for the top job after Mark Hurd's ouster in August 2010, he added.

On a more personal level, opponents and media on the campaign trail last year raised questions about Whitman's fierce temper and imperious manner with employees, and even about her integrity after it emerged that the wealthy former CEO had employed an illegal alien maid.

Whitman has her work cut out to try and turn the lumbering ship around. On Thursday, Chief Financial Officer Cathie Lesjak warned that HP's revenue outlook remained uncertain with Europe still soft and public spending weak.

But she made it clear it was imperative to speed up discussions around the personal systems group, or PC division.

"This decision is not like fine wine. It's not going to get better with age," Whitman said. "I am going into this with an open mind."

(Writing by Edwin Chan; Editing by Gunna Dickson, Gerald E. McCormick and Richard Chang)

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Chipmaker Micron hit by weak PC sales, stock slumps

Chipmaker Micron hit by weak PC sales, stock slumps

Stock Market Predictions

SAN FRANCISCO (Global Markets) - Memory chipmaker Micron Technology (MU.O) posted quarterly results below expectations and warned of low visibility in a weak consumer PC market, slamming its shares.

Boise, Idaho-based Micron's stock had already slumped 25 percent since the end of April due to worries about lackluster PC sales and potential steep losses in an antitrust trial against Rambus (RMBS.O).

Micron's poor results on Thursday pushed its shares down 12.9 percent in after-hours trading and compounded negative sentiment in the tech sector after Oracle (ORCL.O) also posted quarterly profit that disappointed investors.

"We've all seen a softening of the desktop and notebook PC climate, partially offset by some growth around tablets," Mark Adams, Micron's vice president of worldwide sales, told analysts on a conference call. "At this point, it's hard for us to call too much further out in the future."

Micron Chief Executive Steve Appleton said inventories of DRAM chips used in personal computers were a bit higher than normal but that inventories of NAND chips -- used in tablets -- were tight.

Sales of PCs have grown at a slower pace than expected in recent quarters as some consumers worried about a tough economy hold off on large purchases and others choose Apple's (AAPL.O) iPad and other tablets over laptops.

This month, two prominent market research firms cut their forecasts for 2011 PC sales although PC chip giant Intel (INTC.O) said it was standing by its previous guidance for the quarter ending in June.

SHOCKING

Intel says developing countries like China are driving PC growth, but computers sold there often include fewer DRAM chips than models in the United States and Europe.

"Revenue is a bit shocking," said Avian Securities analyst Win Cramer of Micron's results. "Emerging market PC growth is good but they're not DRAM dependent."

Micron said revenue from DRAM chips was 7 percent lower in the third quarter compared to the previous quarter due to lower sales volume, a bad sign for competitors like Japan's Elpida (6665.T) and South Korea's Hynix (000660.KS).

Revenue from Micron's NAND chips, used in tablets, phones and other mobile devices, declined 5 percent, with prices down 5 percent.

"This market is jittery, worried about demand and macroeconomics," Stifel Nicolaus analyst Kevin Cassidy said of the after hours sell-off of Micron's stock.

He said that with Micron now trading below book value, he would continue to recommend the shares.

NAND and DRAM chips have long been commodities whose prices depend on supply and demand.

To reduce its exposure to market volatility, Micron is increasing its sales of specialty and high-end memory chips that go into solid-state drives and network equipment.

But as Micron's rivals also move into those niches, they in turn risk becoming commodities as well.

ANTITRUST UNCERTAINTY

Adding to uncertainty in the memory chip industry, a trial got underway on Monday in which Sunnyvale, California-based Rambus accuses Micron and Hynix of restricting the availability of memory chips using its technology starting in the 1990s in favor of chips with their own technology.

Rambus claims up to $4.38 billion but analysts say Micron's stock may have been punished too much since larger memory chipmaker Samsung (005930.KS) settled antitrust claims with Rambus last year for no more than $900 million.

Micron posted fiscal third-quarter revenue of $$2.139 billion, down from $2.288 billion in the year-ago period. Analysts on average expected revenue of $2.364 billion, according to Thomson Global Markets I/B/E/S.

Micron said its net profit was $75 million, or 7 cents a share in its fiscal third quarter, compared with $939 million, or 92 cents a share, a year earlier.

Shares of Micron were down to $7.34 in post-session trading after closing up 3.18 percent at $8.43 on Nasdaq.

(Reporting by Noel Randewich, editing by Bernard Orr)

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Microsoft stock tumbles after Windows sales dip

Microsoft stock tumbles after Windows sales dip

Stock Market Predictions

SEATTLE (Global Markets) - Microsoft Corp shares fell as much as 5 percent on Friday, a day after the software company reported a dip in its Windows operating system sales.

The world's second-largest tech company behind Apple Inc met Wall Street's profit estimate and beat on overall sales in its earnings report on Thursday.

But investors were concerned with lower personal computer sales nagging at Windows, Xbox sales bringing down profit margins and losses in its online business.

Microsoft shares closed down 3 percent at $25.92 on Nasdaq after a late-day rally. Earlier in the session they hit a low of $25.36, a 5 percent drop which would have been the largest one-day percentage fall since July 2009, had the shares closed at that level.

The shares ended around the level they were at on Monday, before a run-up leading into quarterly earnings. The stock had risen sharply after chip maker Intel Corp forecast revenue above Wall Street estimates, feeding optimism that a dip in PC sales last quarter did not indicate a long-term trend.

"Everyone, including myself, pounded the table on the Intel trade," said BGC Partners analyst Colin Gillis. "And it just didn't happen."

PC sales fell 1 percent last quarter, according to research firm Gartner [ID:nN13301394]. Microsoft's results reflected that, although it said business demand was outpacing weak consumer demand for PCs.

The stock is down 16 percent in the last 12 months, compared to a 16 percent gain in the Nasdaq.

"There were two catalysts for the sharp decline in Microsoft," said Joe Cusick, senior market analyst at Chicago-based online brokerage firm optionsXpress. "One, the stock broke through the 200-day moving average of $26.08, and UBS lowered their price target for the stock."

UBS analyst Brent Thill on Friday cut his price target on Microsoft to $32 from $35, citing the long-term threat posed by tablets to the traditional PC business.

"Even though they had good earnings, the PC market is under scrutiny and there continues to be uncertainty on whether or not Microsoft can compete with the growing tablet and handheld devices from the likes of Samsung and Motorola," said Cusick.

Options traders, many of whom placed bets on Microsoft shares jumping earlier in the week -- perhaps as a hedge to holding the stock in case of a decline -- moved into a more critical mode.

"There is nothing too rosy in Microsoft options trading on Friday compared to some of the bullish trades we saw ahead of earnings," said Caitlin Duffy, equity options analyst at Interactive Brokers Group in Greenwich, Connecticut.

"For the most part, we are seeing call selling in near-term options," she said, indicating traders are looking to get rid of their rights to buy the stock.

Overall, Microsoft analysts kept their faith that Microsoft will survive a rough patch in PC sales. Twenty-five of 35 analysts polled by StarMine recommend buying the stock. Only one says sell.

As a result of Microsoft's decline, it is close to being eclipsed by old foe IBM in terms of market value. Apple, which overtook Microsoft last year, is the most valuable U.S. tech company at $321 billion, Microsoft is second at $225 billion and IBM is third at $207 billion.

(Reporting by Bill Rigby and Doris Frankel. Editing by Robert MacMillan, Bernard Orr)

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Microsoft Windows fizzles as PC fears loom

Microsoft Windows fizzles as PC fears loom

Stock Market Predictions

SEATTLE (Global Markets) - Sales of Microsoft Corp's flagship Windows software disappointed for the third straight quarter, taking the gloss off better-than-expected earnings that were aided by an unusually low tax rate.

The results failed to excite a market already wary about growth prospects for the company and PC industry as netbook sales give way to tablets. The stock was flat in after-hours trading.

"All eyes are on Windows and how they are ultimately going to extend this franchise in the future, as the PC business continues to lose share to the tablets," said Josh Olson, technology analyst at money manager Edward Jones. "Microsoft is really a show-me story in terms of its ability to extend its core flagship products to these new growth platforms."

On Wednesday, chipmaker Intel Corp warned that PC sales will not be as strong as it had expected this year.

Microsoft is expected to enter the tablet market in earnest next year with the launch of its next operating system -- code-named Windows 8 -- which will be compatible with the low-power chips designed by ARM Holdings favored by tablet and mobile phone makers.

Despite the Windows dip, Microsoft managed to ease past Wall Street's earnings estimates, helped by strong sales of its Office software and Xbox game console, as well as a dramatic drop in its tax bill.

The world's largest software maker follows Google Inc, Apple Inc and International Business Machines Corp in reporting surprisingly good results as technology spending holds up relatively well in an uncertain economy.

BIG BEAT

The Redmond, Washington-based company on Thursday posted net profit of $5.87 billion, or 69 cents per share, up from $4.52 billion, or 51 cents per share, in the year-ago quarter.

That easily beat Wall Street's average estimate of 58 cents, according to Thomson Global Markets I/B/E/S. Microsoft has beaten the average profit estimate for each of the last nine quarters.

Microsoft was helped by an unusually low tax rate of 7 percent in the quarter, which cut its tax bill by more than $1 billion from the year before, to $445 million. The company, which gets most of its revenue from overseas, said the savings were due to a one-time tax gain and more business flowing through its regional centers in the low-tax jurisdictions of Ireland, Singapore and Puerto Rico.

Sales rose 8 percent to $17.37 billion, ahead of analysts' average estimate of $17.23 billion, boosted chiefly by sales of Office, Xbox and server software behind Microsoft's push into Internet-centric, or "cloud" computing.

Microsoft shares fluctuated after the results were announced in after-hours trading, settling close to their closing price of $27.09 on Nasdaq. The stock is up 8 percent over the past 12 months, compared to a 30 percent rise in the Nasdaq composite index. The shares are stuck at a level first hit in 1998, adjusted for stock splits.

"These numbers are good. The question is, what will make Microsoft break this range in which it is stuck, between $25 and $28?" said Trip Chowdhry, managing director at Global Equities Research. "I don't see these numbers giving an indication that the stock is going to break away."

OFFICE, XBOX STAR

Spending by businesses on technology has generally outstripped cash-strapped consumers since the worldwide economic downturn.

Microsoft's business division, which last month rolled out online versions of its popular Office suite of programs such as Outlook, SharePoint and Excel, was the company's biggest seller in the quarter, racking up a 7 percent increase in sales to $5.8 billion.

The server and tools business, which sells software used by datacenters -- an essential building block of cloud computing -- posted a 12 percent increase in sales to $4.6 billion.

The entertainment and devices unit, which sells the company's video game and phone products, posted a 30 percent increase in sales to $1.5 billion, mostly due to the popularity of the Xbox and the new hands-free gaming Kinect add-on.

Sales at the Windows unit fell 0.8 percent to $4.7 billion. PC sales grew only 2.3 percent in the second quarter, according to tech research firm Gartner, well below earlier projections, as economic uncertainty hangs over consumers and Apple's iPad and other tablets eat into the market.

Microsoft's perennial money-losing online services unit, which runs the Bing search engine and MSN Internet portal, posted a 16.5 percent increase in sales to $662 million, but its loss widened to $728 million from a loss of $688 million a year ago, as Microsoft continues to pour money into attacking Google. The unit has now lost almost $6.5 billion in the last three fiscal years.

(Additional reporting by Alexei Oreskovic in San Francisco and Liana Baker in New York; Editing by Richard Chang)

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Google jumps as investors cheer mobile growth

Google jumps as investors cheer mobile growth

Stock Market Predictions

SAN FRANCISCO (Global Markets) - Google Inc's free Android smartphone software, already a big hit with consumers, is starting to win the hearts of investors.

The world's No. 1 Internet search company offered a peek at its mobile business during quarterly results on Thursday, revealing that the business was generating revenue at an annual run rate of $2.5 billion, up from $1 billion last year.

That helped Google sail past third-quarter financial targets set by analysts, sending its shares up nearly 6 percent to $591.68 on Friday and easing some of Wall Street's concerns that mobile returns might not justify the investment.

"People just haven't given them any credit for that division. I think it could be a huge part of the overall company," said Pat Adams, portfolio manager at the Dunham Loss Averse Growth Fund, which owns Google shares.

"There are so many more mobile devices out there than there are PCs," Adams said. "What they did was brilliant to give that operating system away to get the search part of it," he added.

Google lets phone makers such as Samsung Electronics, LG Electronics and HTC Corp use its Android software for free, banking on consumers using those phones to visit Google's advertising-supported website to search for information.

The booming popularity of smartphones has frustrated many of the established giants of the computer industry, from Microsoft Corp to Hewlett-Packard Co.

For Google, whose business is built upon people using its search engine, making the transition from the personal computers to mobile devices is crucial.

The company has stepped up investments in its mobile business, which competes with iPhone-maker Apple Inc. Google's Android mobile software -- already the world's most-used smartphone platform -- powers 190 million devices, up from 135 million in mid-July.

The explosion of Android devices, as well as the availability of Google search on Apple's iPhones, has made Google even more dominant in mobile search than on the desktop PC, according to JP Morgan analyst Doug Anmuth who pegged Google's mobile search market share at 90 percent.

That strong position accounts for the sharp, 28 percent uptick in paid clicks on search ads that Google experienced during the third quarter, Anmuth said in a note to investors.

Those ads appear to command lower rates than PC search ads, analysts noted. But some analysts said they expect that to change over time, especially as Google creates new forms of advertising that take advantage of a user's location.

Mobile advertising sales is but one component of what analysts believe could be a broader wireless opportunity for Google. The company has begun offering coupon deals, and could make money through retailer loyalty programs and its recently launched Google Wallet, a free service which allows shoppers to use their mobile phones to pay for purchases.

MOTOROLA BET

More concerning for some investors is Google's plan to acquire mobile phone maker Motorola Mobility Holdings for $12.5 billion.

The deal will give Google access to one of the largest patent libraries in the wireless industry, as well as hardware manufacturing operations that will allow it to develop its own line of smartphones.

But some worry that Google is entering a low-margin hardware business in which it has no experience, and that the move could jeopardize its relationships with other phone makers that use Android.

BGC Partners analyst Colin Gillis said he did not think Google's increase in mobile ad revenue would make investors feel any better about the Motorola deal, which is expected to close this year or early in 2012.

"You could argue the Motorola deal puts some of that revenue at risk," he said, noting that some current Android phone makers might see Google as a competitor once it acquires Motorola and reduce their support for Google products. Google has said it plans to operate Motorola as a separate business.

Gillis also noted that the $2.5 billion annual run rate in Google's mobile business, while impressive, remains less than 10 percent of the company's overall revenue.

And he added that Google may not necessarily have based the $2.5 billion run rate on one quarter's worth of revenue, which would have suggested that Google made $625 million in mobile revenue in the third quarter.

"They probably took the last month and multiplied it by 12. It could be the last day," he noted. "We have no idea what that number really is."

Whatever the number though, Google's mobile revenue is clearly growing quickly, and for many on Wall Street, that's good enough for now. Many brokerages raised their price targets on Google on Friday, some by as much as 10 percent.

"We think mobile is near a massive volume inflection point," wrote Susquehanna Financial Group analyst Herman Leung in a note to investors on Friday.

"At these growth rates, we think mobile revenue could be larger than display (advertising revenue) by 2012."

(Reporting by Alexei Oreskovic; Additional reporting by Sayantani Ghosh, Tenzin Pema and Rachana Khanzode in Bangalore; Editing by Richard Chang)

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