Tuesday, May 17, 2011

Shooting Leo the Messenger

We here at NotMakingThisUp have long noted in these virtual pages that Hewlett-Packard was about as good at manipulating Wall Street's Finest as it was in manipulating printing ink, thanks to the wonders of the type of aggressive "Non-GAAP" accounting that supposedly went out of style along with the demise of Non-GAAP masters such as WorldCom, Enron and other scams, but was revived and perfected under the reign of Mark Hurd at HP.

Thus the fact that HP's quarterly-earnings-obsessed past finally caught up with it is, as far as we're concerned, notable only for the timing, coming as it does during a rip-roaring technology spending cycle. All bad things must, eventually, come to an end sometime.

Still, what's happening today in the aftermath of this morning's HP earnings call is what always happens when a company comes clean and WSF find themselves off-base: they get embarrassed by their own lack of intellectual honesty; the scales fall from their eyes; and the knives come out. Indeed, one of WSF is going to far as to declare (to what purpose we haven't a clue, except to shift the blame for a bad stock pick to the company) "the Tomfoolery must end."

We would argue the "Tomfoolery" has indeed ended at HP; that it began to end when Mark Hurd got booted; and that anyone looking to blame Hurd's replacement, Leo Apotheker, simply because he had the guts to deliver the bad news that HP has been ginning up margins in the service business at the expense of the long-term health of that business strictly to hit Wall Street expectations and make the $13 billion Mark Hurd spent on EDS not look so goofy (something Wall Street's Finest should have seen coming) would be shooting the messenger and missing the message.

Now, as always, we here at NotMakingThisUp express no opinion of HP stock, to the good or bad. And who knows if future results will match today's guidance. But, at a bare minimum, we'd take Leo's honesty over Mark's beat-the-numbers management style any day.

Meantime, our reflections on Berkshire's annual shareholder meeting, which we're calling "Munger's Revenge," need attending to. Whether we'll have them up here before Leo's turnaround strategy takes effect at HP is not clear.

JM


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The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

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