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HP's Fiorina not amused by lack of investor interest

'Stop laughing at me!'

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An almost humble Carly Fiorina urged investors to take a closer look at HP and consider what the company has accomplished, during a meeting today with financial analysts.

We say almost humble because Fiorina never really comes off as being "less" than anyone and never lets HP come off as "less" than any other company. HP is number one and has IBM and Dell right where it wants them. Standard stuff.

Fiorina did, however, lower herself a bit more than usual, pleading with the analysts gathered in San Jose to look past HP's roadkill flat stock price.

"I think in some ways it has taken some time for the market to understand what we have built here because it's different," Fiorina said. "On the other hand, it is also true that the numbers are the numbers. There is no mystery or magic here to the value proposition of this firm.

"I continue to believe, if people will look at these facts, it certainly argues for a higher multiple."

Fiorina does have some grounds for complaining about HP's stock market performance. Over the past year, HP has managed to turn around its PC and server businesses from big losers to mild gainers, while its imaging and printing unit continued to pile up cash. In addition, HP has not lost the drastic amounts of share to rivals that some predicted following its acquisition of Compaq. But, in the past 52 weeks, investors have not rewarded HP at all, keeping its shares flat, while Dell and IBM shares are up more than 10 percent.

One could argue that the main reason HP shares have been pinned down by rivals stems from investors' perception of HP as being caught between services rich IBM and nimble, cheap Dell. Even Merrill Lynch analyst Steve Milunovich has caught onto this. Fiorina, as always, demanded that this is not the case.

Where HP has returned its businesses to profitability, IBM has become more affected by losses in its microelectronics business and a waning mainframe business. In addition, IBM must protect middleware and database franchises, she said.

"We don't see middleware as a big growth category," Fiorina said. "It's why we are not in it. We don't see databases as a big growth category either."

IBM also lacks the printing, imaging and device skills that HP has to tempt healthcare, entertainment and education customers with "end-to-end" sales, Fiorina said.

"We come at these opportunities in totally different ways."

And what about profit machine Dell?

"People always laugh at me when I say this, and I am not sure why," Fiorina said. "Dell's business model is to distribute the products of others."

Um, here's one guess, Carly. I-T-A-N-I-U-M. Or try B-E-A. Laughing yet? How about H-I-T-A-C-H-I. Okay. Last one. i-P-O-D.

Glad we could help. No reason for you to be missing the joke. Guess you've been busy inventing new ways to rebadge kit.

Moving on, Fiorina suggested that Dell's low-cost model will come back to haunt it in the next couple of years. Dell's average unit price is falling, and it can't create new markets on its own.

"I think their bottom line will inevitably deteriorate over time," Fiorina said.

And what of HP's bottom line? Fiorina said she expects the company to show 20 percent growth in earnings per share over the next couple of years. HP will benefit from tying services sales onto enterprise computing deals and from advancing its consumer products, Fiorina said.

Fiorina is a master of positive spin, as proved by today's performance. It's certainly true that HP has managed to tie together a couple of strong quarters and that it did a fine job of pulling off the Compaq acquisition. But the easy profit picture Fiorina paints is tough to gulp down considering how much the company still relies on its printing and imaging divisions. As Fiorina admitted, HP can't squeeze too much more revenue out of these products, and its PC and enterprise hardware businesses are still only mediocre performers.

HP can claim it's not like IBM or Dell until the Itanic reaches the end of its 20-year life. This doesn't mean investors have to listen. ®

A Web cast of today's meeting is available here.

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