Anyone have any new ideas? I know we have mentioned this numerous times – sorry - but the business and investing world is chock full of followers. We recently wrote about one example in the defense industry, but alas, it is not an isolated case. Take the PC business. IBM (IBM) successfully converted itself into a very profitable software business by dumping its PC business so the brilliant idea for its struggling former peers (at least US based peers) is to follow suit. Analysts are still calling for Hewlett-Packard (HPQ) to spin off its slumping PC business despite the fact that the company already flip-flopped on the idea just last year and that the proposal led to its then CEO getting the boot. Current CEO Meg Whitman has opted for a broader restructuring instead and has often noted her preference to keep the PC business in-house.
HPQ isn’t the only one receiving free advice though. Dell’s (DELL) stock price dropped dramatically following reporting weak earnings in its PC unit and out from the chorus of analysts emerged…you guessed it…calls for a breakup! Topeka Capital Market’s Brian White noted that “we believe Dell should consider getting rid of this [PC] business and focus on expanding its enterprise solutions business.” Now I can’t say that I had previously ever even heard of Topeka Capital Markets but it still counts. Here is a Motley Fool piece examining Dell’s worth ex-PC unit. It is worth noting that this appears to be a minority opinion within the analyst ‘community’ and others noted the importance of PCs to Dell’s business despite the really, really lousy margins. Michael Dell famously mocked the idea of H-P’s spinoff so it seems unlikely the company would pursue this strategy.
While we are obviously pro-spinoff and root for a healthy pipeline, more often than not these ‘calls’ end up leading nowhere. I expect every future weak earnings report will lead to this type of news, but who knows? Maybe it is the right idea and one will actually play out or perhaps some activist will get involved and force the issue.
Disclosure: Author holds no position in any stock mentioned.