Got lots of cash? How about clubbing your competition with the green stuff? That’s what HP seems determined to do to Dell
On the surface, bidding $2 billion for a company that hasn’t made an operating profit in the last five years looks nuts.
Dig deeper, though, and the battle between Dell (DELL) and Hewlett Packard (HPQ) to buy data storage company 3Par (PAR) doesn’t look nuts. It’s looks insane. Sales are projected to hit all of $235 million for the year that ends in March 2011. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected at just $21 million.
On August 28 Hewlett Packard bid $2 billion for 3Par, topping Dell’s previous bid, which topped Hewlett Packard’s previous bid, which topped Dell’s bid. Dell proposed paying $1.5 billion for 3Par. The latest bids come to roughly 95 times EBITDA for 3Par.
Aren’t these companies certifiable?
Well, if you’re even asking that question you don’t understand where we are in the economic cycle and how that’s driving company strategy in the technology sector.
This isn’t an age for valuation when companies carefully figure out how to get the best value for the cash they’re about to spend.
This is the era of Cash as Bludgeon. Cash rich companies are looking to club their poorer competitors over the head with dollars. At worst, the result of this spending will be a competitor unable to climb off the canvas for years. At best, this spending might be able to crush a competitor forever.
Put the Dell/Hewlett Packard contest over 3Par into competitive context and it starts to make sense, in spite of the insane valuation awarded to 3Par.
Update Cisco Systems (CSCO)
When I was a kid and I’d turn up my turn up my nose at a great present that wasn’t exactly what I wanted, my grandmother would say, What do you want, egg in your beer?
Well, today, May 13, investors in Cisco Systems (CSCO) remind me of that little kid I was. They’ve sold off shares of Cisco Systems by a little more than 4% today because in earnings for the company’s fiscal third quarter announced after the market closed yesterday the company only reported the strongest quarter in company history (said CEO John Chambers) and didn’t raise guidance for the next quarter.
Mind you, Cisco didn’t cut guidance. On the conference call the company said revenue for the next quarter, the company’s fiscal fourth quarter, would be up 25% to 28% from the fourth quarter a year earlier. That works out to revenue of $10.6 to $10.9 billion. Exactly in line with the $10.68 that Wall Street analysts had projected.
And that’s the big disappointment? Got to be since I can’t find one in the rest of Cisco’s numbers.
Update Cisco Systems (CSCO)
Cisco Systems (CSCO) rules the technology that runs the Internet, but it’s got a few things to learn about product announcements. On March 9 the company held a teleconference staged with all the hoopla of Apple (AAPL) announcing a new iPhone. But then Cisco unveiled a new core carrier routing platform with the catchy name of CRS-3.
The stock actually dropped 26 cents a share the day after the teleconference.
I can understand the investor disappointment. The CRS-3 isn’t an iPhone-like consumer product.
Update Cisco Systems (CSCO)
The recession is certainly over for Cisco Systems (CSCO). Today, February 3, after the market close the company reported earnings for the quarter that ended in January (Cisco’s second quarter of fiscal 2010) of 40 cents a share. That was 5 cents a share better than Wall Street projections.
Tech stocks had already finished strong for the day before Cisco reported. The positive surprise could be enough to keep what was one of the weakest sectors in January on the mend. (For more on the January slide in the technology sector and what it means for the market as a whole see my post http://jubakpicks.com/2010/01/28/odds-that-this-is-a-10-correction-and-not-just-5-rise-as-tech-stocks-sink/ )
Chances are pretty good since unlike a lot of tech companies that have followed great earnings reports with disappointing guidance, Cisco raised projections for the next quarter in its conference call.
Technology shares leading this rally so far
Technology stocks look placed to lead the market on both technicals and earnings.
After Friday’s sell off, the sector resumed an uptrend on Tuesday January 19 that stretches back to the late November lows. Strong results from Intel (INTC) on Thursday and IBM (IBM) argue that earnings will support the strong technical upward trend. Both companies announced fourth quarter earnings that beat Wall Street estimates.
There’s one part of the technology sector that’s looking especially strong.
