Tuesday, January 22, 2013

Capitalist Stumbles

It’s quite possible to admire a company’s products while, at the same time, disliking its management. In such cases, the company used to have a great management—the reason why we like its products. But while the products are still great, the company is evidently changing for the worse. My favorite example is Hewlett-Packard. I write this on an HP computer; next to it stand two HP printers. A story in the Wall Street Journal today, disemboweling a turgid HP acquisition and its troubling consequences for HP’s stock performance, reminded me of my love-hate attitude. The WSJ looks at stocks—but HP’s capitalist stumbles endanger a genuine value, the technology now retired managements at HP created to win a huge following. HP is still the leading personal computer and printer producer.

Back in August of 2011 I registered my dislike on this blog (link) when the company announced its plans to sell its personal computer group. I knew then that a capitalist management group had taken the reins from earlier groups inspired by engineering and customer services.

Herewith some details which are backed by HP’s own 10-K SEC filing, available from HP’s website. Here is a company that, in 2011, had revenues of $127 billion of which $38.4 billion were personal computers (30.2% of revenues). The company had a pretax profit of 6.1 percent on its PC revenues, which also represented 16.9 percent of its total pretax profits. Why would a company want to dump a business—indeed a core business—that is both significant in size and profitable? The answer? Because a capitalist mentality came to be in charge.

Looking now at three years of data, 2010 through 2012, HP had seven revenue-producing segments. The three largest were PCs, Printers, and Services. The others were Servers/Networks, Software, Financial Services, and Corporate Investments. In the 2010-2012 period, the first three, while profitable, exhibited declining sales. They moved from representing 80.2 to 77.5 percent of total HP revenues. The growing segments were the next three. Revenues from Corporate Investments were not only declining, they were also losing money.

In the capitalist universe, a company is nothing other than a machine for harvesting profits from something, never mind what. And the profits must be growing. Companies do not exist to serve the public. Product doesn’t matter. Therefore HP set about in 2011 to become mighty in Software and in Financial Services, the first growing at an annual 20.2, the other at an annual 11.6 percent (2010 to 2012). HP therefore undertook the acquisition of the British Autonomy Corp. and announced plans of dumping its personal computers. Soon after acquiring Autonomy, HP had to write off $8 billion because Autonomy had been a bad purchase. And thus far the PC Group is still within HP. But I can well imagine the morale in that group since August 2011. And the mood within the Printer Group must also be ecstatic.

Now we’ve been made to think that some kind of law of nature is at work in business—and that it is right and proper for corporate entities to operate without any concern whatever for the customer base on which they rest. Never mind the product, the society, the communities—even when plentiful profits are flowing from providing the latter with services. What matters is growth and the stockholder. But such behavior is not a law of nature. It is the consequence of human nature—where self-centered greed must be resisted and transcended—and public protection of corporations through laws of incorporation must be earned by service to the public.


  1. Yes, this HP story is a painful one... and one we have seen many times before.

    May I suggest that you look up and read a short article entitled "What Dell's Attempt to Go Private Says About the Public Markets," by Margaret Heffernan in Inc. magazine. It speaks about a trend in which companies are departing public exchanges in favor of running privately and why... worth the read! Here, I'll try and embed a link.

    Keeping an eye out for positive changes...

  2. Excellent article, Monique. Maybe after going private, Dell will figure out how to make computers that are less noisy--as in a heavy hum--which is what kept me from buying their product.

    The difference between private and public? Private is traditional business; public is the embrace of the capitalist ethos. Hence, you know where we belong.

    There are lots of signs of positive change. The trusted strategy as well as tactics? Do the right things. Civilization will sort itself out in due time. Meanwhile it will have laudable examples to imitate when things inevitably fall apart. Some, however, will still be standing.