Annex Research Activism: Letters to Editors

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June 10, 2004


Using Wrong Facts Discredits Your Opinions

Re. The Nation's Worst CEOs (6/10/04)



Jon Markman, Columnist

Subject: Your CEO story (June 10, 2004)

Dear Mr. Markman,
I read with interest your column this morning at about who you thought the nation's worst CEOs were.  I don't claim any expertise in other sectors, but I know a little bit about computers and IT, having been a part of that industry for over 34 years now (check out the Annex Research web site for more details, or give me a call at 602-824-8111 if you want to discuss my expertise).  And so, looking at your article from that vantage point, I must say that I was stunned by some of your and your sources' allegations about Carly Fiorina.
I am not talking about opinions.  You and your sources are entitled to any opinions you may choose to form.  I am talking about facts.  Using wrong facts only discredits your opinions.   Take the following quote, for example: 
"If Hewlett is not profitable in personal computers, and it's not profitable in mainframe computers, and it's not profitable in services, and their printer business is being hollowed out by Dell, then what's left?" asks Bret Rekas, a hedge fund manager in Minneapolis. "I'll answer that: nothing."
As it turns out, HP is profitable in all of these business segments that your hedge fund manager-source cites as "not profitable." 
As for HP's printer business being "hollowed out by Dell," the assertion is ludicrous.  That's like saying Shaq O'Neal is being bested under the basket by a first grader.  HP is shipping about one million printers a week covering a price range from $39 to $1 million each.  Dell is shipping about 60,000 a week, with most printers under $100 bundled with their PCs (i.e., given away).  Printers are the most profitable part of HP, with operating profit margins in the 15%+ range, despite the enormity of its revenues (about $24B).  Dell's printers don't even rate a separate line in its financial statements.  In fact, Dell has not published any revenue or profit figures for its printers.  So you're comparing HP facts to Dell hype.
You make a valid point, however, when you say, "In 1995, Hewlett-Packard posted $38 billion in sales and earned $2.5 billon. In 2003, it posted $73 billion in sales and earned the same $2.5 billion. That's not progress. That's running harder to stay in the same place."
But the IT industry has gone through a dramatic change in the last nine years during which the value has been going out of hardware and into services and/or software.  One would think that you would want to give HP credit for being able to change and adapt and survive... and now GROW, too, despite being laden with its hardware legacy back in 1995.  For some examples to the contrary, think of DEC, Amdahl, NAS, ICL, Nixdorf, Memorex, Wang, Data General or other hardware has beens who did not have the leadership with a vision and courage to change.
BTW - you also asked for nominations for other "worse CEOs."  Here's one... Lou Gerstner.  For reasons why, go to the Annex Research web site and run a search using his name as keyword.  Then compare Gerstner's track record to those of his predecessors. 

t regards,

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Bob Djurdjevic
Annex Research, Inc.
Phoenix, Arizona

P.S.   BTW - if your call for the worst CEO suggestions had to refer to the current ones, then I nominate EDS's Michael Jordan.  For many reasons why, just run a search at our web site using EDS as keyword, and check out the three articles I wrote about EDS in 2004, such as "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004.

Bob Djurdjevic