2013 to See HP or RIM Most Improved, Apple Falling and Facebook Toast

Rob Enderle

The date isn’t a typo. The fact is that HP is actually positioned to lead the industry in improvement next year. I’m writing this to point out that firms that are at the top when an industry change happens tend to lose their position and, because it is often inflated, it falls fastest, and those at the bottom (who are recovering) are most likely to rise the fastest because their low position is also over-emphasized, or deflated, in this case. 

Currently, HP’s low position is largely because of bad acquisition, which was undertaken by the prior executive team and should be put behind them next year, and Apple is already trending down even though its current fourth quarter sales are reportedly rather good.  

What I’m really suggesting is that folks both inside and outside companies watch perceptions because they are generally more powerful than reality.

Why HP Should Rise

While this shouldn’t be a stretch, given HP has found a way to have a major disaster for every one of the leadership teams it has rapidly swapped out over the last decade (some seemed to last far longer than expected), I want to start by saying that while the odds favor a rise typically, HP’s disaster habit seems to offset these odds. 

Having said that, the issues driving HP’s decline are largely transitory and disconnected from HP’s potential business success. One exception is its debt is historically high but that is currently overshadowed by the Autonomy acquisition problems and remaining fallout from what has been a long chain of organizational changes. Both of these powerful drags on HP’s image should be well behind the company in the second half of 2013 and if, as the company plans, it can step out with a believable strategy, investors and customers should see the firm more favorably, and allow both the valuation and the perception of the firm to increase substantially. 

In short, HP should be able to appear out of the ditch and given the firm is currently number one or two in most of the markets it plays in, being out of the ditch should restore it to a stronger position. 

Why RIM Should Rise

RIM is actually in better shape than HP largely because the firm is far less complex and because both Google and Apple are having issues moving successfully into business. RIM is slated to drop its new platform early next year and because it has a unique focus on a market segment, currently underserved, it has the most opportunity for great success and RIM’s shares have been trading up in anticipation.

The company enjoys many of the same competitors that HP has but it has nowhere near the complexity or the history of recurring problems with subsequent leadership teams. In addition, it has made massive changes to marketing and advocacy, correcting past issues that should, if its new platform is successful, allow it to move aggressively into the market.

Offsetting this though is the fact it is already rising, which might limit the amount of additional growth it will get next year and HP will be starting the year farther down, which may give HP the growth edge. 

Apple’s Fall

Apple has the exact opposite problem. It carries a valuation of an image that is over-inflated due largely to the powerful efforts of Steve Jobs who made the company appear magical. As we end the year, the valuation of the company appears to have massive downward pressure and this is largely because the architect of that massively powerful image has passed — and along with that passing Apple’s apparent leadership.

Motorola discovered how far and fast you can fall, as did Palm, when their subsequent executive moves caused both companies to fall from their heady heights. Simply the loss of the belief that Apple is unbeatable will drive Apple down. The company won’t fail next year and will likely still be one of the leaders in technology, but its days of challenging oil companies for valuation leadership will likely be over next year.

Facebook Is Likely Done

We see this playing out now. First, its Instagram unit basically said that all of your pictures belong to them, causing a massive exodus of their big influencers and then Facebook announced unavoidable annoying video ads in news feeds, which should have the same result. Facebook continues to be a firm defined by inexperience and foolish mistakes, apparently with virtually no marketing, customer research or understanding of the people it serves. 

With Facebook, unless some changes are made, it isn’t an issue of whether it will fail (and cause its own failure), it is simply a matter of when.   

Wrapping Up: The Power of Perception

The lesson in all of this is that the power of perception is pre-eminent. HP and RIM will rise if the perceptions surrounding them rise, and given they are largely artificial, that rise is likely. Apple will fall because the guy who surrounded the company with an image that exceeded reality is gone and apparently can’t be replaced. And Facebook appears to be on a mission to destroy the perceptions surrounding that company and, unless it changes, will likely destroy itself.

One of the things both Louis Gerstner (who turned around IBM) and Steve Jobs (when he turned around Apple) did to assure their success was apply a heavy focus on fixing the perceptions of their companies before they fixed the companies. This showcased that perceptions always trump reality and if companies, or politicians, don’t fundamentally understand this, they will lose. 

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Dec 20, 2012 3:01 AM jhesr jhesr  says:
HP is very undervalued mainly because they have gotten so much bad press. The company itself is fundamentally strong. The bad press has created the perception that HP is losing money and is on death's door. Which is completely inaccurate. HP made $120 billion in revenue in 2012. Looking at HP's portfolio of products and services will show some problem areas like consumer PCs, but it will also show areas of great promise such as the expanded 3Par portfolio, their networking equipment, their software portfolio (yes, including Autonomy), and their cloud efforts (www.hpcloud.com). I have tried to look at HP's portfolio in a very critical manner and I come away finding more things to be excited about than areas to be concerned about. I don't know when HP's quarterly data will start turning the corner, but I am very confident that it will happen. I think HP has a very clear path ahead of them for how they will be able to grow their profits. It will lie in the areas of cloud and software. I was not a shareholder of HPQ stock until this year and I think this has been a fantastic opportunity to buy into a very robust and solid company at an extremely low share price. Reply
Jan 3, 2013 12:19 AM PSbolt PSbolt  says: in response to jhesr
Fundamentally Strong? Yes HP made $120 billion in revenue in 2012, but the cost of that revenue was $92 billion, then add in operating expenses of $19 billion then add net non-operating losses of $21 billion and you get a pre-tax income of -$12 billion. There is nothing strong about losing $12 billion, especially from a shareholders point of view. Should we look at profitability? Return on equity of -41%, return on assets of -11%. How about growth? Revenue growth of -5%, operating income growth of -18%. Feel free to talk about their portfolio of products. Feel free to make predictions of when they can turn it around. But do not call this company fundamentally strong. Sometimes there is very good reasons for bad press. This is one of those times. I'll wait until they turn a profit and show some actual revenue growth before giving them any of my money. Reply

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