carly fiorina photoCarly Fiorina is currently a candidate for President of the United States of America. She is campaigning for the nomination of the Republican Party to run in the general election of 2016. According to her, one of her strengths is her business background. Most notable she speaks of her background as the first CEO of a DOW30 company: Hewlett-Packard [stckqut]HPQ[/stckqut].

This site is purposefully non-political. While I tend to be a conservative and have voted for a Republican candidate more times than not, I do not want this site to reflect my personal political thoughts. I will occasionally point out a law or regulation that is tough on investors or the business community, but success at investing must be an apolitical activity. In fact, I have written that investors should probably ignore politics and political turmoil when investing.

I am writing this article simply to analyze the success of Ms. Fiorina or the lack thereof. I am fairly hard on companies and their management. It takes a lot to make my Watch List, and most companies cannot achieve that level of performance. I doubt that HP would have made that list while Ms. Fiorina was CEO, and it certainly cannot make that list today.

donald trump photoIronically, her record at HP is one of the criticisms of Ms. Fiorina. Donald Trump is famous for criticizing her as a failed CEO, and he often cites the writings of Jeffrey Sonnenfeld. It is virtually impossible to compare the success of Donald Trump as CEO with Ms. Fiorina as CEO since Mr. Trump’s businesses are not public entities while most of Ms. Fiorina’s career has been with public entities. It is possible to dig into Ms. Fiorina and see just how lousy she was as the leader of a massive corporation.

I will point out that there is an incredibly different scale in Ms. Fiorina’s career with Mr. Trump’s career. It is unlikely that in 1999-2005 (the time when Ms. Fiorina was CEO of HP) that Mr. Trump’s combined businesses would have cracked the Fortune 500 in revenue. In comparison, Ms. Fiorina was in the DOW30, which the Dow Jones company creates to give the best representation of the overall health of the stock market. In other words, Ms. Fiorina was in the big leagues while Mr. Trump was making a lot of personal money in the minor leagues.

So how did Carly Fiorina do as CEO?

It is probably best to take a look at her critics. Mr. Trump is fairly light on details, but he cites Mr. Sonnenfeld, so let’s look at his criticisms as revealed in Politico.

  • In the five years that Fiorina was at Hewlett-Packard, the company lost over half its value.
  • During those years, stocks in companies like Apple and Dell rose.
  • Google [stckqut]GOOG[/stckqut] went public, and Facebook [stckqut]FB[/stckqut] was launched.
  • The S&P 500 yardstick on major U.S. firms showed only a 7 percent drop.
  • At a time that devices had become a low margin commodity business, Fiorina bought for $25 billion the dying Compaq computer company, which was composed of other failed businesses.
  • The only stock pop under Fiorina’s reign was the 7 percent jump the moment she was fired following a unanimous board vote.
  • Fiorina countered that she wasn’t a failure because she doubled revenues. That’s an empty measurement.
  • She hasn’t had another CEO position since her time at HP

Let’s look at each of these accusations.

In the five years that Fiorina was at Hewlett-Packard, the company lost over half its value.

This is true and is a great reason that it was probably foolish to purchase the stock of HP in that time period. However, to accurately gauge the failure we must look at the reasonable peer group of HP. I contend that the reasonable peer group was Dell, Apple [stckqut]AAPL[/stckqut], Oracle [stckqut]ORCL[/stckqut], IBM [stckqut]IBM[/stckqut], Cisco [stckqut]CSCO[/stckqut], and EMC [stckqut]EMC[/stckqut]. I choose this group for several reasons. They are all quite large and, for the most part, they got their revenue at that time from either selling personal computers or from selling large and complicated systems to the IT departments of major companies.

Unfortunately, Google Finance only shows a weekly price for that long ago. While Ms. Fiorina joined HP on July 19, 1999, and left on February 9, 2005, those dates are not exactly available on Google Finance. The exact dates may be available on other sources but using Google Finance makes it easy for my readers to play with the dates as well as throw in other comparison companies.

HP comparison chart

 

If we look at the above chart it goes from July 9, 1999, to February 18, 2005. This is a very close approximation to Ms. Fiorina’s joining and departure dates. A quick appraisal shows that only Apple and Dell increased in value during this time frame. The other companies decreased in stock value, and most of them decreased in the same approximate range as HP.

In fact, you can see that several of these companies, including HP, had peak prices shortly after Ms. Fiorina joined HP. Many of the companies had significantly bigger drops than HP during the period. If we move the start date to March 2, 2000, you will see that most of these large enterprise-IT sellers had much larger drops in stock value than HP. Obviously, this was a major challenging time for companies that sold in the same market as HP. Even Apple dropped over 70% by the end of 2000. Remember, Apple at this time was not the amazing gadget, phone and entertainment content seller of today, but instead a computer company that was quite reliant on selling personal computers.Read More →

Editors Note: An investor needs to be very concerned about having too many stocks that are influenced by the same market factors. Understanding these relationships can be confusing at times. This guest article by Troy does an excellent job of helping to explain this concept.

Guest Post by Troy Huot

Why do stocks trade up? Why do stocks trade down? When you invest in a stock you need to comprehend what jolts the equity you’ve investing in either higher or lower. One contributing factor may have nothing to do with the stock you own at all.

Arbitrage is not usually the reason your beloved stock gets hammered on any given day. The old adage, “everything happens for a reason” definitely holds true in relation to the stock market. Stocks trade in unison and typically stocks trade in unison by sector.

Stocks can be divided up into many sectors based on the type of business the company is involved in. Some sectors include, but are not limited to: energy, financial, health care, industrials, retail and technology. It is imperative that you know what sector your stock belongs to as the stock can increase or decrease in value based on competitors in their sector.

For example, Apple is in the technology sector and its direct competitors are Dell [stckqut]DELL[/stckqut] and Hewlett-Packard [stckqut]HPQ[/stckqut]. News could come out that Apple Macbook Pro computer sales are going to be lower than expected this quarter. As a result, the stock could sell off drastically. You could trade the news on Apple [stckqut]AAPL[/stckqut] knowing there is also a possibility that both Dell and Hewlett-Packard could decrease in price too. Why? Because investors will insinuate that the decrease in sales for Apple is a foreshadow for dismal computer sales for both Dell and Hewlett-Packard. This has a direct impact on all the companies which leads to a rainfall effect that could send all three stocks trading lower.

There are also many other indirect stock market links that investor’s must pay attention to. Apple and Hewlett-Packard may be directly connected but companies like Apple and Omnivision Technologies [stckqut]OVTI[/stckqut] have an indirect relationship. Omnivision Technologies creates and manufactures a semiconductor image sensor for the camera used in Apple iPhones: do you see the relationship here? It could come to light that iPhone sales have increased dramatically from first quarter to second quarter. This could lead to Apple’s share increasing in price as well as Omnivision Technologies stock since Apple uses Omnivision’s product in their iPhone.

Stocks trade higher and lower based on several other reasons including current commodity prices. If you are an owner of apparel maker, Lululemon Athletica [stckqut]lulu[/stckqut], then it is in your best interest to monitor the price of cotton. If the price of this commodity escalates, odds are Lululemon will trade lower due to the fact the company now has to pay more money to purchase cotton. Cotton is the main fabric used in clothing so it’s price can have a huge positive or negative impact on retail companies. If cotton costs increase for a clothing company but the price of merchandise sold remains the same then profitability will decrease which might disgruntle investors. A company like Lululemon can not simply just increase their price of a hoody or yoga pant either. Doing this could lead to losing customers to competitors which would hurt the company even more. Many clothing manufacturers like Nike [stckqut]NKE[/stckqut], Under Armour [stckqut]UA[/stckqut] and True Religion [stckqut]TRLG[/stckqut] could also perish from higher commodity prices and this is why stocks in similar sectors tend to trade together.

As an investor you must always be observant and understand direct and indirect relationships between companies that makes stocks trade together. This will indubitably help make you more money during your investing lifetime. Nonetheless, this will also help prevent you from making some terrible mistakes in the future which will have a direct, and indirect, impact on your bank account.

Like what you read? Find more related articles and content at http://www.conquerinvesting.com

Article Source: http://EzineArticles.com/?expert=Troy_Huot

If you are watching the news the last few weeks, you will have noticed that the current management team of Hewlett-Packard [stckqut]HPQ[/stckqut] is practically accusing the Autonomy management of lying. H-P management is saying that Autonomy was not worth what it paid for the company but the fault lies with Autonomy and not with H-P.

In my forthcoming book (hopefully on sale by Christmas), “The Confident Investor” I explain that investors should sit back and watch when a company makes a large acquisition.  Never own a company that sells more that 10% of itself (e.g. spins off a division) or buys another company that is larger than 10% of the original company (e.g. they acquire a company as a new division or subsidiary). These extraordinary events can radically change a company and divert its attention. While many such events will result in a stronger company, you cannot be confident in the short term that your investment is safe. It is usually safer to invest your money and time elsewhere while the dust settles.

The 10% rule of thumb is simply that, a rule of thumb. Sometimes you should be wary of a company making a smaller acquisition that is significantly above market value. Too often these deals include far too much goodwill and then that goodwill turns out to be bad.  In a recent Wall Street Journal article, “‘Tis No Season for Goodwill to Investors” it was pointed out that H-P is writing off more than $5B in goodwill for the Autonomy acquisition. They are not alone though since Microsoft [stckqut]MSFT[/stckqut] just did a $6.2B write-off and Bank of America [stckqut]BAC[/stckqut] a whopping $15.6B.

Sometimes, a major acquisition turns out well but you should always be wary. If one of your major holdings makes a significant acquisition there are a few quick steps to take. First, find out if the company is being praised by the business media. Typically, if the media is positive towards the acquisition then it isn’t terrible.  Second, do some quick analysis of the acquired company – would you invest in the company at the acquired price? If you are not sure how to establish a fair price then you really should read my forthcoming book as I spend time explaining how to value a company.

Not all acquisitions are bad but you should be wary of all acquisitions.

The financial and technical news is buzzing this week about Google’s [stckqut]goog[/stckqut] acquisition of Motorola Mobility Inc. [stckqut]mmi[/stckqut] My general rule is that when a company acquires another company that is bigger than 10% of the parent then a Confident Investor needs to get cautious. Google’s revenue is $33.3B and Motorola Mobility’s revenue is $12.7B. Too many companies get very confused and get lost during a merger of this size and this is quite likely to happen here. For this reason, I am removing Google from my Watch List until Google has had some time to integrate MMI.

When the news of the merger first broke, the discussion was all about Google buying the robust library of patents that Motorola Mobility owned. While this is an immediate benefit to Google as they fight in the very litigious environment of mobile platforms, it would be foolish to limit this acquisition to just that portfolio.

Google is paying $12.5B for MMI. This is a pretty high premium to pay for the rights to the patents. If Google just wanted the rights to protect against lawsuits then they could have licensed these patents for far less money. Of course, Kevin Smithen, an analyst from Macquarie USA, thinks that Google only wanted the patents and will spin off the hardware business relatively quickly.

If Smithen is correct then the various Android manufacturers have nothing to fear. In fact, this would be the best of all worlds in that MMI will be severely confused as it moves into Google and then shuffled back out to private equity or some other manufacturer. This would be a recipe for near death for MMI going through that many transitions and their competitors will take advantage of that confusion. The various phone manufacturers would also enjoy the fruits of Google’s largess and have fewer patent problems as Apple[stckqut]aapl[/stckqut], Microsoft [stckqut]msft[/stckqut], and Oracle [orcl[/stckqut] try to stop or get a piece of the Android revenue stream.

However, I do not think that Google will miss the opportunity to compete with their top competitor: Apple. It is very clear that the Android OS will continue to be the most popular mobile phone OS just like Windows on the desktop is the most popular OS. However, just like on the desktop, the preferred vendor is Apple. Whenever a new phone running Android is introduced, it is compared to the gold standard, the iPhone.  Whenever a new version of Android comes out, it is compared to the gold standard, iOS. Whenever a new tablet comes out, it is compared to the gold standard, iPad.

I do not think that that Google wants to be the Microsoft of the phone. Rather, their culture is much closer to being like Apple. If you look at all of the products from Google (usually creating little to no revenue for the company) most of them are about defining and creating a great user experience. This is what Apple has almost always tried to do. The one place that Google doesn’t do this is in mobile phones where their OS, Android, is placed on so many different form factors that they no longer have a great user experience across the entire platform.

The addition of MMI to Google gives them the unique opportunity to create a phone platform that is tightly coupled between hardware and software that is only seen in products from Apple or Research In Motion [stckqut]rimm[/stckqut]. There, though, is the rub. Few companies have been successful at running a business that is equal parts hardware and software. Apple is the only one true success in that area while others were successful for awhile and then struggled (think RIM and Palm). Most companies do not do a great job of being great in both hardware and software. Rather, they focus on hardware (think HP[stckqut]hpq[/stckqut], Dell[stckqut]dell[/stckqut], and Lenovo) or they focus on software (think Microsoft, CA[stckqut]ca[/stckqut], and Oracle[stckqut]orcl[/stckqut]) and they let the other side be “good enough” to support the core. Yes, HP makes software but that isn’t the core of their business and, for the most part, their software is designed to operate their great hardware. Similarly, Microsoft makes computer mice but few people consider this to be the core of what Microsoft is. For years, Oracle was a software only company until they bought Sun, another company that struggled being a software company and a hardware company.

Apple though has carved out a unique position in that they make great software and equally great hardware and they combine the two together to enable an awesome user experience. That is what Google has the potential to do with MMI. It won’t be easy and they could elect to take the easy way out and spin off the hardware business. In addition to being incredibly difficult to do well, it is also risky in that their Android partners would be very unhappy about a well integrated Android phone competing with a “stock” phone running Android. The road to excellence may force Google to upset their partners a great deal and Google simply may not be up to the task of accomplishing this goal.

The Motorola Mobility deal also allows Google to be excellent in another area that is dominated by no one and may be even bigger than mobile phones. Motorola generated nearly $3.6B in set-top boxes and services for television. Google has dabbled in this area of the market without much huge success. The combination of Google’s software with Motorola’s set-top infrastructure could create an integrated environment that would have everyone else on the outside looking in on a very strong revenue stream.

This acquisition could be only about protecting Android from patent suits but that would be a shame since Android doesn’t add significantly to Google’s bottom line. If Google wants to be truly great, this acquisition could be about trying to learn from Apple and teaching the master a trick or two. The question is: can Google out-Apple Apple? While this will be interesting to watch, I would prefer to watch it from the sidelines and not as an investor so I will sit back for a few months to see how this proceeds.

Apple [stckqut]aapl[/stckqut] has come under a great deal of discussion in the past week or so due to it’s ever expanding hoard of cash. Most companies hate having that much cash in the bank (or perhaps they are not fortunate enough to accumulate it) but Apple seems to really enjoy having a big savings account.

Since all the other bloggers that discuss companies and investing seem to have chimed into this conversation, I have to decided to do it as well.  Here are my suggestions:

  1. Use the cash like they have been. Apple uses its cash very effectively and very aggressively. As pointed out in PC Magazine, Apple effectively uses its cash to gain a technical advantage by locking up its supplier community in ways that their computer and device competitors such as Toshiba, Dell [stckqut]dell[/stckqut], and Hewlett Packard [stckqut]hpq[/stckqut] simply cannot afford to do. They are able to help manufacturers build their plants to create new components and lock in a pricing and supply chain that virtually locks out or delays the competition from the latest and greatest hardware advances. This competitive advantage means that they can continue to create large amounts of profit and build more cash.
  2. Increase R&D and rapidly expand their products with things that people want. Last year, Apple spent about 2.7% of revenue on R&D (and last year about 3.1%). I would like to see this grow to 7 or 8% of revenue. Yes, this is a big increase but Apple has a unique opportunity to solidify their presence in the markets that are important to them. Think what would happen if Apple had twice as many products that covered a broader spectrum of electronic experience.
  3. Increase their library. They should vastly increase their library of movies and video content to stream.  While they shouldn’t be stupid about the deals that they cut but they need to make deals with every movie and TV content holder out there. The consumer needs to feel that if they want to watch a professionally created video, Apple will always have the content. Making a ton of money in this area is not incredibly important (but don’t do it at a loss). What is more important is that they use this content to drive the sales of more multimedia devices and computers. While they are at it, they need to cut deals with the newspapers and magazines as well. Apple has had some short-sighted rules that have prevented the allegiance of those that create printed material – they need to put these rules aside.
  4. Streaming. They should make it so that they can stream to their subscribers more easily and more reliably than ANYONE else.  Supposedly they are investing in more data centers and that is a project that should be accelerated and expanded. Also, there are rumors of acquisition discussions with Hulu, this would be an acquisition that makes sense as it fits with their core offering today. Some commentators suggest that they should diversify by buying a company like Facebook but that would be ill-advised. Most companies that try to expand into vaguely related markets end up screwing up (think of EBay [stckqut]ebay[/stckqut] buying Skype).
  5. Integration with the cloud. They should make it so that integration between their products on your local network and between their products and the cloud is seamless and easy – in fact even fun.  Lion looks like it has great features in this area but they should take it to a new level. They would do well to expand that connectivity by putting a Windows application out there that makes Windows computers integrate easily and rapidly with Macs/iPhones/iPads. This doesn’t mean iTunes but instead iTunes on steroids – no cords – use the cloud, the private cloud, and the local connectivity connection of the computers.Read More →