Last week, HPQ’s reputational ranking was at the 33rd percentile and its forecast stability was the highest among 22 peers. That's a poor showing for what was once the icon of Silicon Valley, but its been a bad year. After all, in addition to the boardroom personnel shenanigans, H-P this past August took an $8 billion writedown on the 2008 EDS acquisition representing more than half the $14 billion purchase price. Likewise, H-P is believed to have written down most if not all of the value of its 2010 acquisition of Palm for $1.2 billion.
Back in September, the Motley Fool explained why HP’s reputation—based on expectations of innovation--was on a downward spiral.
-Lack of invention/innovation: Well we can say that HP has not lived up to its tag line-invent. HPQ has filed 1 patent a week on an average last year as compared to 44 filed by International Business Machines (NYSE: IBM) and 88 filed by Samsung…(I)f patent filing is taken as a sign of innovation power for the company, then HPQ has miles to travel before it is in par with its competitors.
-Lack of competing factor: The last CEO of the company Leo Apotheker made an announcement in the public which led to a huge negative impact on its business.… In such a situation instead of taking a hasty decision of separating the PC business from its umbrella brand, HPQ should have worked more on how to improve its operating margin and bring down its overhead costs in this segment.
-Technological Pace: HPQ - the pioneer of the mobile device, is … unable to keep up the momentum in the mobility space. HPQ launched its Touchpad in July 2011 – a ray of hope. But as a shock to many, they removed the Touchpad within 45 days itself - reflecting non competence in this arena.
-Over reliance on webOS: WebOS lacked that appeal to the consumer sector…and which caused the failure of its Touchpad.
And then there were the governance matters:
-Fragile / Inconsistent top management: One of the signs that the company is going down the drain is when we see that the top management is fragile or changing regularly. This is quite visible in HPQ where the CEOs have changed many a times with the likes of Carly Fiorina, Mark Hurd, Leo Apotheker and now Meg Whitman.
-Maligning its own reputation: HPQ is quite famous in the imaging and printing group – one of its major sources of earnings. HPQ was busted a few months back for putting less and less ink into its Printer cartridges. … In their attempt to earn pennies they lost the trust factor of many of their precious loyal customers.
With the latest metrics now available, Huygens interpretation of last week's numbers was only partly right. The vital signs (top right graph, below) show rock-bottom historical volatility of RV, a non-financial measure of reputational value, meaning, as The Fool explained, every stakeholder had good reasons to not expect much from HP. Current volatility, however, has jumped from the 10th percentile to the 52nd percentile, meaning, HPQ is now "average" among firms in this highly risky technology sector. It could have been a greater shock, but, as the metric show, it simply wasn't. The RVM volatility time series, (top left graph, below), shows last week's spike raising current volatility to a level only slightly above the median for the whole sector. HPQ's CRR, a measure of relative reputational ranking, dropped over the week from the 33rd percentile to the 10th percentile. ROE remained at bottom, and the forecast stability dropped from 1.0--the most stable--to the the 29th percentile and clearly not the worst in this sector. Forward looking measures, (right column, bottom two rows) are signalling further reputational value deterioration. (For a deeper understanding of the metrics, read: Reputation Stock Price and You: Why the market rewards some companies and punishes others).
Yes, when everyone expects you to fall, it's hard to elicit any startle responses. It is even harder to surprise anyone with a fall when you are already on the floor. And yet, mathematicians have long suggested that there must be some practical application for imaginary numbers. Now, Pippin?