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Article: Take a look at HP

By Adam Lashinsky | FORTUNE Magazine | June 13, 2005

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Hewlett-Packard CEO Mark Hurd is expected to put execution ahead of vision. That's
why it's time to buy the stock.
ON MAY 17, IN HIS FIRST QUARTERLY earnings call as chief executive of HewlettPackard, Mark Hurd talked fast and promised results-yet divulged precious little
about his plan to revive the beleaguered tech giant. There was no grandiose vision,
no elaborate roadmap for restructuring. Just a healthy dose of jargon-coated talk
about "efficiency" and cost cutting. But Hurd's brand of boring corporate-speak was
exactly what a growing number of HP bulls were longing to hear. Since the
company's board ousted Carly Fiorina in early February, some of the country's
savviest value investors, including the team at the top-performing Dodge & Cox
Stock fund, have been aggressively buying shares of Hewlett-Packard (HPQ, $23).
That is exactly what HP has gotten in Hurd. During his 25 years at computer
services company NCR, Hurd demonstrated a painstaking attention to daily
operations in the divisions he ran. When he took over as CEO of NCR in 2003, the
company's shares were trading at $10. Hurd initiated an eight-quarter plan to cut
$250 million in costs. By the time HP called he was well ahead of schedule and
NCR's stock had leapt to $37.
Despite Hurd's reticence, industry pros familiar with his style have an outline of how
he's approaching the task at hand. The performance of the stock, they say,
ultimately depends on how well Hurd executes these three turnaround strategies:
(1) Cut until it hurts. Hurd already has signaled that investors should expect
relatively serious cost-cutting in the form of layoffs. (2) Raise the bar. In his few
public comments, Hurd has let slip that HP is "off benchmark" in numerous areas,
notably in the amount of money it spends on information technology, the very
product it sells to others. (3) Keep his promises. With its periodic revenue and
earnings misses plus its failure to achieve its own merger goals, HP became a hated
stock on Wall Street. Much improved but still plenty of room to get better.
Even if he whips the company into shape quickly, Hurd is facing long-term
challenges. HP has struggled with razor-thin margins on computers and-worseinconsistent results. "Hurd can improve the stock in the short to medium term,
because it's cheap," says Toni Sacconaghi, an analyst with Bernstein Research. "But
HP will perennially be forced to reduce its costs to sustain operating margins." A
difficult chore, for sure. "Almost no one believes HP can come out of this a great
company again," Milunovich says. But if Hurd can live up to his reputation, it might
turn out to be a great investment.
Source:
http://archive.fortune.com/magazines/fortune/fortune_archive/2005/06/13/8262555/
index.htm?iid=sr-link1