I agree. HP's hardware business is dragging down its stock price. this is one of the reasons why IBM sold off its PC division to Lenovo. Services and software usually provide a return on invested capital of 30 percent or more, compared to 15-20 percent for hardware.
IBM's ROIC is currently at 34.1% compared to HP's ROIC at 16.2%. After IBM sold off its PC division to Lenovo in 2005, IBM's ROIC grew from 17.75% in 2006 to 29.55% in 2010 with a 5 year average of 27.6%.In comparison HP's 5-year average ROIC is only 15.9%.
HP wanted to do the same thing IBM did 7 years ago. The big difference was that before selling off its PC division, IBM already had a strong software and services business (generating half of its revenue). they also bought PriceWaterHouseCoopers' consulting arm in 2002. HP's software and services business isn't nearly as strong, even after buying Autonomy so they got clobbered by analyst and the media.
IBM's ROIC is currently at 34.1% compared to HP's ROIC at 16.2%. After IBM sold off its PC division to Lenovo in 2005, IBM's ROIC grew from 17.75% in 2006 to 29.55% in 2010 with a 5 year average of 27.6%.In comparison HP's 5-year average ROIC is only 15.9%.
HP wanted to do the same thing IBM did 7 years ago. The big difference was that before selling off its PC division, IBM already had a strong software and services business (generating half of its revenue). they also bought PriceWaterHouseCoopers' consulting arm in 2002. HP's software and services business isn't nearly as strong, even after buying Autonomy so they got clobbered by analyst and the media.