Tuesday, 27 May 2014

Chop, chop, chop to raise the share price

Hewlett-Packard was a pioneer of the Silicon Valley, having begun as the quintessential garage start-up, which in the minds of some, had a rather romantic, counter-cultural flavour, as opposed to the predominant suit and tie corporate culture represented by IBM in the computing and information technology world. The Hewlett-Packard company was founded auspiciously on 1 January, 1939, shortly before the start of World War II.

In its heyday, Hewlett-Packard was largely engineering-oriented, and made quality products which were designed to last and to be easy and quick for engineers and technicians to service. I once came across a Hewlett-Packard reel-to-reel tape drive backup in Telekom Malaysia's telex & teleprinter exchange. It looked something like this model HP-7970 and I was very impressed by its highly modularised design, where its nine individual plug-in read/write circuit cards and tape tension arm photo disk were laid out in such a way as to be easily accessibly and quickly replaceable and adjustable by a technician standing up, unlike comparable Digidata and Pertec tape drives which I had to service and maintain back in the 1980s, which required me to be a contortionist like Houdini.


After all, technician time and customer downtime is money, and Hewlett-Packard had it all well figured out.

In 1998, Hewlett-Packard offered me an HP Vectra VE desktop PC, a fixed asset which they disposing of a "firesale" price of around RM1,800 and I bought it, even though I could have got a brand new clone for less. I was equally impressed by the Vectra's design which made it easy to add and remove hard disks and other peripherals. I used it for my work for many years.

However, Hewlett-Packard has not been the same following its merger with Compaq in 2002. I bought a Hewlett-Packard HP520 notebook in 2007 and some years later discovered that one of its two RAM slots was not working when I upgraded my RAM.

Moreover, I discovered that its original 80GB hard disk had bad sectors three years later when I installed Ubuntu Linux 10.04 LTS and its hard disk monitoring software alerted me to a failing hard disk. I rarely used this notebook, except when I went on overseas assignments. I finally replaced the hard disk with a 500GB hard disk.

Then in 2012, its internal Intel WiFi adaptor failed, which I replaced with a working unit for very much less than the RM500 plus RM250 service charge, the Hewlett-Packard service centre quoted me for a replacement.

This is part of what Wikipedia has to say about the Hewlett-Packard & Compaq merger:-

"While supporters of the merger argued that there would be economies of scale and that the sales of PCs would drive sales of printers and cameras, Walter Hewlett (son of co-founder Bill Hewlett) was convinced that PCs were a low-margin but risky business that would not contribute and would likely dilute the old HP's traditionally profitable Imaging and Printing division. David W. Packard (son of co-founder David Packard) in his opposition to the deal "[cited] massive layoffs as an example of this departure from HP’s core values...[arguing] that although the founders never guaranteed job security, 'Bill and Dave never developed a premeditated business strategy that treated HP employees as expendable.'" Packard further stated that "Fiorina’s high-handed management and her efforts to reinvent the company ran counter to the company’s core values as established by the founders". The founders' families who controlled a significant amount of HP shares were further irked because Fiorina had made no attempt to reach out to them and consult about the merger, instead they received the standard roadshow presentation as other investors."


The founder's families wanted to retain the company's core founding values, which treated its employees as valuable human assets and not disposable like used toilet paper or sacrificial lambs on the alter of the share price in the "Temple of the Dollar" as my old buddy Kynen once described a shopping mall.

However, this is where the Hewlett-Packard company is 12 years after its merger with Compaq, with layoffs after layoffs in succession in repeated bids to keep profits, hence share prices up.

The bottom line though is that finance capital cares not for production of value but just in how an asset can be bled for money, just like a vampire drains the blood of its victim in parasitic manner.
This is the contradiction between productive capitalism and finance capitalism as well described by Vladimir Lenin in his pamphlet, Imperialism, The Highest Stage of Capitalism published in April, 1917, and by other political-economic scholars and analysts.


Lenin's solution was socialism and the replacement of the capitalist political, economic and social order with the socialist political, economic and social order.

Also, in the Confucian social hierarchy,  the merchant is ranked lowest in the social order, since they do not create anything but merely trade in things for profit.


The Confucian social hierarchy was (theoretically) the social organization of China and occasionally Japan, Korea and Vietnam for the last two thousand years. It is not a caste system, since it does not lock people into an occupation based on birth (At least, not in China. In Japan, it was used as such at various points), but just as an idea of what occupations and activities are intrinsically important to society.

The list is similiar to other social orders, for example the one in Plato's Republic or the Vedic caste system. However, it has some key differences.

  1. Shi are at the top of the list. These people are often translated as scholars. Their job is to coordinate projects, lead people, keep records and transmit knowledge. More important then these functions is the fact that these people keep perform the highest function of human life: showing a respect for ritual, and respect for human nature and learning. This, theoretically and often in practice, was the glue that held society together, catastrophes and wars not being able to overcome it.
  2. Nong were the peasents, although not at all in a perjorative sense. Confucianism placed a great value on the production of food, both because this was believed to be the natural order, and because "mei you nongren, mei you chi de dongxi", "If you don't have farmers, you don't have anything to eat". Being a nongren also doesn't at all suggest that a person is indentured or bounded to the land, or even poor, although in practice the nong were often just that.
  3. Gong is translated as "work", although the meaning of it actually comes closer to "craft". The gongren, the workers, produced all the nonagricultural tools and implements that people needed to survive. Mencius pointed out that if everyone had to make their own tools, no one would have time to grow food. Therefore, since peasents needed spades and scholars needed brushes, craftspeople were neccesary. But since when it came down to it, a plate of rice was more important then a hammer, craftspeople were not as immediatly neccesary as farmers.
  4. Shang were the business people, the merchants. And since merchants didn't actually create anything, but just brought it into one place (while making a hefty skim off the top), merchants were considered to be only one step above parasites on society. Of course, in reality, it was often the merchants who were in charge of society, since they had the money, which both gave them power, and allowed their children to study to become scholars.

What is just as interesting is who is left off the list. While such categories as actors, prostitutes, criminals and the like would be expected to be left off, the exclusion of soldiers is different then most other social hierarchies. In India and Plato, the soldiers were the second class of citizens, in China they are classless, considered to be an unavoidable embarrassment. Of course, it was possible to be a member of the scholar class and lead a military contingent, but that was considered to be a scholar or administrator, not a soldier.


Also left out of the Confucian social hierarchy are the bankers and finance capitalists, whom I'm sure would have been ranked the lowest of the low, despite their obscene wealth. I guess there weren't many of them around during Confucius' time.

The original Hewlett-Packard of its founders was a company based upon the asset value of scholars and workers but the latter day Hewlett-Packard is beholden to financial imperatives such as share prices and its employees (human assets) are suffering the consequences.

Story of Hewlett-Packard's continued layoffs follows below.

Hewlett Packard To Cut 16,000 More US Jobs

((Ian King)  Chief Executive Officer Meg Whitman, still struggling to turn around Hewlett-Packard Co. (HPQ), is opting for more job cuts, a move that boosted shares the most in six months.

After reporting an 11th straight quarter of declining sales, Whitman is propping up profit by paring as many as 16,000 more employees, on top of 34,000 already announced. While she has stabilized Hewlett-Packard after years of management upheaval and presided over a 39 percent share climb since taking over in 2011, the company is facing its third straight drop in annual revenue.

Consumers are buying fewer personal computers and printers as they embrace smartphones and tablets, and companies are opting to use more software via the Internet or building their own machines. By shedding workers, Whitman is lowering expenses, which will free up cash for investment in new businesses and enable her to report better profit.

“It clearly gives them more cushion to work on the revenue growth,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc., who has the equivalent of a hold rating on the stock. “It’s going to be challenging to deliver that revenue growth.”

Profit excluding certain costs in the period ended April 30 was 88 cents a share and revenue fell 1 percent to $27.3 billion, the Palo Alto, California-based company said in a statement yesterday. Analysts had on average predicted profit of 88 cents and sales of $27.4 billion, according to data compiled by Bloomberg.

Seeking Growth
Hewlett-Packard shares gained 5.5 percent to $33.54 at 11:46 a.m. in New York, the biggest intraday increase since Nov. 27. Through yesterday, the stock had been up 14 percent so far this year, compared with a 2.4 percent gain in the Standard & Poor’s 500 Index.

Net income in the fiscal second quarter rose 18 percent to $1.27 billion, or 66 cents a share, from $1.08 billion, or 55 cents, a year earlier. The company’s one percent year-over-year revenue decline in the second quarter was the closest it’s come to growing since 2011.

The company’s 1 percent revenue decline in the second quarter was the closest it’s come to growing since 2011. Sales shrank 1 percent in the first three months of the year and analysts are predicting they will fall by the same amount again in the current period.

“We want to become a growth company — this is the second quarter of basically flat revenue,” Whitman said in an interview yesterday.“While you may say that’s not very exciting, it’s way more exciting than the historical declines we’ve had for the last eight quarters. The fact that we’re stabilizing revenue is encouraging and positions us well for the future.”

Final Cuts
The job cuts announced yesterday don’t reflect worsening demand for the company’s products, the CEO said on a conference call. Whitman said she doesn’t anticipate the need for further cuts. Hewlett-Packard had 317,500 employees at the end of October.

For the third quarter, Hewlett-Packard forecast that profit, excluding amortization, restructuring charges and other costs, will be 86 cents to 90 cents a share. That compares with the averageanalyst estimate for 90 cents.

Industrywide global PC shipments dropped in the first three months of 2014 as consumers in emerging markets opted for smartphones and tablets, while corporate demand helped slow the pace of decline. Quarterly shipments fell 4.4 percent to 73.4 million units, IDC said. Hewlett-Packard’s market share rose to 16 percent, making it the No. 2 vendor after Lenovo Group Ltd., Gartner Inc. said last month.

Real Gains

Second-quarter revenue in the personal-systems unit, which includes PCs, rose 7.4 percent to $8.18 billion, boosted by sales of business computers. Printing-division sales fell 4.3 percent to $5.83 billion.

One of Silicon Valley’s oldest companies, the manufacturer’s product range spans from PCs and home printers to the servers, networking gear and software used by corporations. Hewlett-Packard has fallen behind in mobile computing at a time when consumers have migrated to smartphones and tablets made by Apple Inc. and Samsung Electronics Co.

Hewlett-Packard’s enterprise-computing unit, which includes servers, had sales of $6.66 billion. Within that division, revenue from servers based on Intel Corp. technology rose 0.8 percent. Storage sales were down 5.7 percent, while networking revenue climbed 6.5 percent.

The enterprise-services division posted a 7 percent decline in sales to $5.7 billion.

“I don’t know that we’ve seen much that makes one feel that they can actually grow again,” said Rob Cihra, an analyst at Evercore Partners Inc. He has the equivalent of a hold rating on the stock.

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