I basically commented this with with a fellow investor:
My problem with Hewlett Packard is that I see the cheapness and appreciate the current CEO but the last years had an earnings run up which I have my doubts is sustainable. The recent analyst meeting gave me a negative feeling. Sales and costs incentives were not aligned, it had bad effect on margins which is being addressed now but which is a sign of deficient operational practices. I have doubts about the quality of the company as a whole. It used to have a good reputation, Tim Cook from Apple worked there in the “old” days. Mark Hurd seemed like a fine CEO but got fired by the board due to a sex “scandal” and went to Oracle. Then they got several CEOs that literally drained the company with bad and expensive acquisitions. The last years have been chaotic and I have too many doubts about its recovery. They have too much debt for my taste and have some financial services that I fear about. They depend on large companies, printing, and consumer products too much. In large companies the competition with IBM, Orcale and Cisco is big. I can not see if printing will be a good business in 5 or 10 more years. Consumer PCs are under a heavy competition. Hewlett’s current CEO used to be Ebay’s Ceo, ironically Ebay is now using Dell’s systems.
On the other hand Dell also looks cheap but the key difference is that I trust it more as a management team and like it’s balance sheet. I like its operational efficiency, it’s customers, services and products. Dell is focused on small and medium companies. It is in a growing sector and offers products and services that scale very well along those clients. Also I like how it has evolved. I like its four main managers. The one from services is great, services are evolving excellently. On the other hand Hewlett is losing services contracts, even to Dell, (see last analyst meeting). The manager from client is quite bright too. The one from enterprise and networking really impressed me, very intelligent and calm, he has done a great job on blade servers. The one from software also made an impact on me, he just came from IBM and is a legend, he developed “websphere”, a star software product I have used personally. The integration of those four managers along with new acquisitions seem to be evolving smoothly and offer a holistic solution that makes a lot of sense to me.
One thing that plays in my favor with Dell is that their SEC fillings divide their customers in four global business segments which are Large Enterprise, Public, Small and Medium Business (“SMB”), and Consumer. It plays in my favor because it gives a very uninformative view of the company. So it keeps away competition from other investors. Another thing that favors to get cheap shares is the mania and fear due to the: iPads/Smartphones/Death of the PCs stories.
That “SEC” way to look at the company gives little information. It has helped me much more to look at it divided by functionality: 1) services 2) client 3) software and 4) enterprise and networking. It’s 4 main managers are divided as such as I wrote 2 paragraphs above. So if you take a Sec filling and read the management discussion you can easily get confused. But when you look at other sources, like investor presentations, analyst meetings, customer and product videos (lots on youtube) and conference calls you get a clearer picture. Specially for Dell, that work is necessary, due to the uninformative traditional segment division they still use on the Sec fillings. What I notice, specially by the questions the analysis make, is that several investors and analysts get confused when they focus only of the SEC fillings segments and don’t dig deeper, which in this case is necessary to get a realistic picture.
PD: I continue loading up on Dell.
Here is one video I liked. It talks about its customers and Wyse products. Wyse offers thin clients, very secure, very popular with Dell’s Banks customers recently (JP Morgan, Deutsche bank, Citigroup …), due to security reasons :
This video talks about blade servers, converged server solutions that solve storage, networking and security all in one:
Finally this shows the recent consumer and small business products, specially tailored for the enterprise due to their security features and windows base: