HP Can't Stop Worrying About Tomorrow

NEW YORK ( TheStreet) -- I'm starting to wonder if the faith that some investors have placed in beleaguered tech giant Hewlett-Packard ( HPQ) will ever prove to be anything other than misguided optimism. As harsh as that may sound, it's looking less and less likely with each passing quarter that the promises of tomorrow will ever come.

Little Growth Today, Little Hope for Tomorrow

HP's stock, which has been on a steady decline, losing over 30% of its value since starting the year at $25, is now under further attack. On Wednesday, the company confirmed what investors have feared for quite some time -- things are going to get worse before it gets better.

The company's CEO, Meg Whitman warned that HP's business segments are in a steep decline and investors shouldn't expect much for all of 2013 as revenues are set to fall in every area except software.

Even more concerning was that HP has now admitted that it can no longer leverage its once-dominant enterprise footprint. Revenue from its service business is expected to drop by 11% to 13% for fiscal year 2013. In other words, forget profitability -- particularly with margins expected to possibly go to zero and only as high as 3%.

Whitman then advised it would not be until 2014 when the company would show some semblance of a turnaround as its investments at that point would then begin to payoff. But Wall Street cared very little about waiting that long. As a result, investors punished the stock mercilessly, sending shares down 13% to $14.91 -- levels it had not seen in nine years.

I'm still a believer in Whitman, but this has to come as a disappointment -- even though not much has been expected from the company in terms of growth. Though HP was a mess when she took over, it is tough to dismiss the 35% loss the company's stock has suffered since she took over just a little over a year ago.

A lot of that can be attributed to the mobile device and tablet surge which has affected its PC business. But a great manager knows how to stop the bleeding.

That said, it is possible that HP could have been overvalued and perhaps analysts expected much more from HP than its talents and market reach could deliver. That's not a sentiment fitting for a company of its stature, but clearly there was a disconnect as the stock has lost almost 70% of its value since 2010.

What Is HP Today?

Its challenge now is figuring out a way to restore the confidence of Wall Street. Not an easy task at this point, but not impossible. To that end it has been working hard to prove that it does not need to be Apple ( AAPL) in order to survive. Unfortunately, in the process, it has tried to become an enterprise computing corporation -- one that follows the mold of IBM ( IBM) and to a lesser extent Dell ( DELL). But it has been unsuccessful.

Now that the turnaround story that it was thought to be is going to take longer than expected, I have to wonder what is HP today? What can it realistically become tomorrow?

Investors are struggling to answer this, but I'm not certain at this point that HP even knows. This is where I think the company should start thinking like Apple and re-invent itself as Apple was able to do over a decade ago with the iPod.

The company recently said it want to re-enter the mobile phone market. Perhaps that will help it generate love on Wall Street and restore credibility. But it's a mistake. HP is not a phone or gadget company -- even less now on the heels of this disappointment. While entering the smartphone market may generate a buzz, it needs to realize it wants no part of Apple and Google ( GOOG). At least not until it gets its house in order.

After all, this is the same cutthroat industry that has left for dead once-dominant powers such as Research in Motion ( RIMM) and Nokia ( NOK) while leaving little room for anyone else wanting to sniff a piece of the pie. Even Microsoft ( MSFT) is finding it increasingly difficult to convince the market that it can produce a phone that consumers love.

Bottom Line

The company realizes it has important decisions to make, and that it is equally important to set realistic expectations. As sour as its announcement was, it's hard to disagree with its reasons for cutting guidance.

In addition to these moves it has recently put plans in place to consolidate its PC and printing divisions. Likewise, it has also announced a reduction in its workforce with the hopes that the combined moves will help save $3.5 billion in expenses over the next couple of years.

Making a play for HP at this point remains a tough call to make as the stock may not be going anywhere for a while. The growth outlook is not very good and the valuation suggests the company is on the verge of collapse.

However, where growth is absent, it is always welcomed to offset it with cuts in expense. How that materializes in terms of profitability remains to be seen.

For a company that seems to worry such much about tomorrow, it would be in its best interest to figure out what it is today. Today, it's not a stock worth owning. Cue the "Annie" song...

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.