Hewlett-Packard’s Downfall, AT&T Detangles its Network, and other Year-End Blockbusters
The year 2012 is ending with a number of key happenings that are changing the face of strategic marketing.
AT&T Gives Up Landline Network
Probably the most significant event is AT&T’s ( T ) decision to junk its wired network and go 100 percent cellular. This will cause a fundamental change in our communications system and probably create the need to improve cellular technology. AT&T’s copper-based network covers 76 million homes and businesses in America. AT&T has said it plans to spend $14 billion over three years to extend its Internet-based broadband network to 75 percent of its landline service area.
Think of the repercussions. A major new industry will emerge to take all that copper wire and recycle it. We are talking thousands of tons of copper. Also, virtually every community in America has a downtown AT&T central office occupying choice real estate. These buildings will all have to be demolished or repurposed. Telephone poles and lines will be replaced by cable towers. And what about those thousands of telephone communications workers? No more telephone wiring in your home or business. All you have to do is go to the AT&T store and buy a cell phone.
Continued Disappointment at H-P
In 2010, Hewlett-Packard ( HPQ ) boasted it was the largest IT company in the world. Its stock had a market capitalization of $100 billion. But the intervening time has brought one stumble after another, and its value has plummeted to $30 billion. Current CEO Meg Whitman is anything but optimistic and admits “there are no silver bullets for a rebound.”
In fact, things look bleaker by the day. It seems that H-P was misguided in its deal to acquire Autonomy Corp. in August 2011. H-P management admitted it was “duped” by the transaction. The accounting loss reported was another $11 billion in write-down. Stock shares quickly plummeted by 20 percent on 20 November.
Above and beyond the Autonomy deal, since 2007 H-P has been a disaster. In 2007, the company’s revenue increased 13%; it declared $5.1 billion in profits; its long-term debt was a manageable $4.9 billion and its Price/Earnings (P/E) was 25. In 2012, revenue declined 5% as the company declared a $5.8 billion loss, long-term debt had increased to $24.1, and its P/E ratio was 5.5 as of early November 2012.
Here’s why, according to the Wall Street Journal: (1) A revolving door of top management has resulted in four CEOs since 2005, and all have failed to perform–especially the current one, Meg Whitman, who is clearly over her head and looks like a deer staring at headlights. (2) Short-sighted management: one of the CEOs, Mark Hurd, steadily increased profits under his regime but at the expense of future growth. (3) Poor use of cash, as evidenced by the Autonomy deal. (4) Declining product lines. Not only have profits declined, but market shares are also dropping – especially in its personal computer lines.
While McDonald’s ( MCD ) has had its ups and downs in recent years, it has remained a steady performer. However, a recent danger signal was the first drop in same-store sales in nine years and a decline in profits.
The company has a lot of excuses: (1) the economy, which makes eating out more costly; (2) economic weakness in Europe, which accounts for 40 percent of the company’s profits; (3) increased competition from Burger King and Wendy’s, and (4) menu items that have not achieved as expected.
Watch for a major influx in new products and some major management changes.
Finally we come to the demise of the Twinkie. A labor dispute has taken this company out of the game and left 18,000 employees out of work. The Hostess stable includes a number of blockbuster brands.
While the current ownership of the company will probably not make it, the brands will survive. Somebody else out there will be making Wonder Bread, Twinkies and Ho-Ho’s.
Count on it.
AT&T has not given up it’s landline network at all. In fact, the decision they made was almost the opposite – they will invest an additional $16B over 5 years to convert its existing copper-based network into one that is entirely IP-based. This doesn’t mean that they are tearing down CO’s, cable, etc., rather upgrading the technology. You are correct for some extreme rural areas, which will only be served by LTE going forward, but for the majority of the population, this does not mean the end of “landline” communications.