Ackman has been pressured to take an activist stake in the company but has refused. First, he noted that HewlettPackard (NYSE:HPQ) is difficult to analyze.
“The problem is that HP is in a number of businesses where I think it’s very difficult to predict what the business is going to look like five years from now, let alone over the many, many years of a discounted cash flow calculation you need to figure out what the business is worth."
This is the core reason why value investors have avoided HP. Two months ago HP announced that it was buying Autonomy, the largest software company in the UK for $10.25 billion. The new focus on software and services is a distinct departure from HP's core business. Thus, how can one perform a discounted cash flow calculation when it's totally unclear of what direction HP will take.
Second, Ackman noted that the PC business is difficult to forecast. "The problem you’ve had is that it looks cheap, but the future of the PC industry is a very difficult business to handicap. It’s incredibly competitive. I think the announcement of their intention to spin part of the business off perhaps has damaged the brand and it is a big, complicated mess."
The PC industry was once a high-growth sector of the economy where growth has slowed to a crawl. As a matter of fact, Gartner research recently cut global PC unit sales growth from 9.3% to 3.8%.
HP does not have a foothold in either of the two fast growing segments of hardware. HP does not have a mobile phone with any market share. Secondly, HP has had a disastrous showing with tablets where it slashed the price to clear inventory.
The final comment that Ackman made about HP was related to its talent pool. Since the company has struggled and leadership has been a revolving door, employee morale has suffered.
“I was actually at HP yesterday for a meeting unrelated to their core business and it was just depressing walking around. The morale of the employees going from an outstanding company to one where they don’t understand the direction of the business.”