Given that HP has just tossed away a lot of revenue (which helps pay for overhead), lost the use of enterprise PC purchases as potential negotiation chips with large corporations, and over-paid for yet another company (the purchase of 3PAR to keep it out of Dell's hands comes to mind), the negative response doesn't seem out of place.
The moves seem like knee-jerk reactions to current conditions and management sins of the past. Time for executives to take a deep breath and consider how to substantively move in the direction they want to go. I'd argue that a merger with software vendor SAP would be the best bet.
HP's legacy: Going nowhere
It's been clear for some time that HP's legacy PC business model, which focused on selling boxes at as high a margin as possible, won't last in an era of increasing hardware commoditization and cloud computing. Back in May, CEO LÃ©o Apotheker said that the future will belong to those who let go of legacy business and move where they need to. It was a scary statement for a corporation, because it meant a hard turn for this aircraft carrier.
Now HP's made that turn, and the markets reacted badly. Yet Apotheker is doing the right thing. Hardware prices are plummeting, and unless you can pull off the creation of an entirely new hardware/software/services ecosystem like Apple (AAPL) has done, that will mean commodity pricing and terrible margins -- I.e., a lot of work to make relatively little money.
HP's trying to follow IBM into higher-margin software and services, but its Autonomy bid was too much money for too little payoff. So, who else might be around that could add big enterprise software and consulting potential that would match with the consulting, server, and printer businesses that HP is keeping? SAP would be a smart choice.
What SAP has to offer
Not only does SAP have significant software for enterprises, but it's already an opponent of Oracle (ORCL), which has more or less declared war on HP since that company dismissed former CEO Mark Hurd, who went to work for his buddy, Oracle CEO Larry Ellison. With the bad blood brewing, HP might as well fully step into the arena. The blend of HP and SAP could combine hardware and software to create enterprise clouds for companies that want to reduce their costs of computing.
Plus, Apotheker used to be co-CEO of SAP, so he knows all the players and understands the business. SAP has a market cap of $60.5 billion, while HP's is currently $49 billion, after the stock drop, meaning that one would be hard-pressed to over-power the other and smother the chances of a combined approach.
It might not be what the markets are expecting, but it could be enough of a complimentary match to actually add value to both companies. Only, please, if it happens, let's avoid the nicknames SHAP or H-SAP.
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