f's analysis of HP's Q2 results

This is a guest post by the infamous "f" Richard Hancock...

Here's my summary - produced by combining the "consolidated condensed statement of earnings" and the "segment information".

Looking at the 33 cents diluted EPS for the quarter yields a very rough valuation of $26 per share. Alternatively, looking at the diluted EPS for this and the previous three quarters, yields a very rough valuation of $24 per share. (I've assumed that it's reasonable to use a PE ratio of 20.)

Comparing this quarter with Q1/2005, it's great to see that ESS is back to generating more profit than PSG, and that software is moving back towards breaking even.

It's interesting that net interest has fallen from a positive $25 million to a negative $87 million. (It's not immediately obvious to me why this should be. It's possible that stock repurchases consumed a significant amount of cash and so reduced interest income, but I'm not convinced that this explains *all* of the fall in net interest.)

Numbers in the table are in millions of dollars and numbers in brackets should be read as being negative: so "(40)" should be read as "-40".

Segment                             Net revenue     Earnings from  
                                                    operations     
                                                                   
Imaging and printing                          6,390             814
Personal systems                              6,369             147
Enterprise storage and servers                4,184             184
Software                                        277             (6)
HP Services                                   3,984             292
Financing                                       544              58
                                                                   
Restructuring                                                   (4)
Acquisition related                                                
Amortization                                                  (151)
Eliminations/other                            (178)           (168)
Net interest and other                                         (87)
Taxes                                                         (113)
                                                                   
Total                                        21,570             966

As always, the HP quarterly results conference call is worth listening to.

Company-wide pay r[a]ises - after, I believe, a 2 year freeze - will cost 3 cents per share per quarter on an ongoing basis! (While workforce reduction costs will also be 3 cents per share in Q3, you can't equate the two and say that job cuts have paid for pay r[a]ises. But there is an element of "be careful when you wish for a pay r[a]ise, because what you're really wishing for is someone to lose his or her job".)

Just to confuse us, workforce reduction costs going forward will be reported as a separate item - as they used to be - rather than being "hidden" in the segment results. (In fact, the Q2 segment results are even better than they look because they "hide" $169m of workforce reduction costs: $71m in IPG; $24m in ESS and $74m in HPS.)

So given the "strong" Q2 results, was HP wrong to bin Carly? From Mark Hurd's comments, it sound like her mistake was to not cut deeply enough. Look for action - including in Software - to really cut out costs. Bob's comments (@39 minutes in) were along the lines of "we expect a new CEO to want to cut more deeply". (Mark comments on Software are @50 minutes in.)

Having listened to George Galloway berating members of the US Senate ;-), it's a shame George couldn't have found an excuse to attend the HP conference call. "Mister Hurd, with your excessive job cutting, you are a toady and lickspittle of Adam Smith."

(If the above is far too depressing for you, take a look at the BAA results presentation. While the speakers could do with an injection of charisma, the results themselves are tres charmant.)

Categories: Mark Hurd, HP, HPQ, Q2.

Why Challenge/Response is bad

Challenge/response (C/R) is disliked by users and legitimate bulk mailers alike. Unfortunately, anti-spam technologists who should know better keep re-inventing it.

The most recent example that I've come across is SquareAnswer. Whenever I hear about a new anti-spam vendor with "secret," "revolutionary," "patent-pending" technology, that suffer "zero false positives," I roll my eyes and prepare for yet another C/R product.

What is it? Briefly, if a C/R recipient is sent email "from" a sender that it's never heard of before, it auto-replies with a challenge. Until the sender has satisfactorily responded to the challenge, their mail doesn't get through to the recipient's inbox.

Although possibly useful in some environments, it's basically a terrible idea. It's generally worse than today's state of the art spam filters, which use techniques such as Bayesian filtering, heuristics, and "out of band" connection data analysis. Here's why...

1. Users hate receiving challenges; especially if their email address has been forged by a spammer and they've never even heard of the person it came from, let alone emailed them. A significant number of people just don't respond to challenges, which means that the false positive problem is worse than with conventional filtering.
2. Legitimate mailers hate it because they can't deal with the flood of challenges when they send out newsletters. Again, the false positive (or "deliverability") problem is worse. Much worse, in this case.
3. C/R shifts the cost of spam from recipients to the senders of legitimate mail. How dare you make me prove that I am who I say I am? I've already published an unambiguous SPF record that says that my IP address is permitted to send email from my domain; what more do you want? We won't win the war against spam until the costs are shifted to the spammers.
4. Users who employ C/R are seen by some as spammers in their own right. It's part of the phenomenon known as "backscatter." Imagine if your email address was used by spammers to forge the "sender" of their pill-pushing messages. You would expect to receive many non-delivery reports from mailboxes that no longer exist, "we don't want your spam" bounces from badly-configures spam filters, and challenges from people running C/R systems. How is this better than the spam we're trying to kill?
5. If you run a C/R system, you are likely to be blacklisted for spamming, and your ISP will receive abuse complaints about you. You may even lose your connectivity as a penalty for violating your ISP's Terms Of Service or Acceptable Use Policy.

Vendors: enough with the C/R reinvention already!

Users and IT managers: don't buy it. There are much better ways to filter spam without the problems that C/R will cause you.

Categories: spam, SquareAnswer, challenge/response.

Who Should I vote For?

That's nice, but shouldn't it be "Whom should I vote for?"

Labour -27
	Conservative 34
Liberal Democrat -12
	UK Independence Party 25
	Green 2

You should vote: Conservative

The Conservative Party is strongly against joining the Euro and against greater use of taxation to fund public services. The party broadly supported the Iraq war and backs greater policing and ID cards. The Tories are against increasing the minimum wage above the rate of inflation, and have committed to abolishing university tuition fees. They support 'virtual vouchers' for private education.

Take the test at Who Should You Vote For.

Categories: UK, election, government, democracy.

I wonder why my webcam's broken

Hmmm... What happens when I do this..?

Hello small vanMeters!

Do you remember when you looked like this?