Arik Hesseldahl

Recent Posts by Arik Hesseldahl

HP Rises on a Day Full of Unusually Good News

Shares of computing giant Hewlett-Packard are rising on a fair bit of unusually good news for a company that has seemed stuck in an endless turnaround.

In late-afternoon trading, HP shares were up by $1.18, or almost five percent. If that holds to the close, it would be the biggest improvement in HP shares since Oct. 8, when they rose nine percent.

So what’s driving the boost today? First, HP has won a $3.5 billion five-year deal to run the communications network for the U.S. Navy. The contract had been challenged by Harris Corp., which lost out on the deal. The Government Accountability Office said without elaborating that it had denied part of Harris’ challenge, and also dismissed part of it.

Update: A few colorful details have since emerged regarding the nature of Harris’s complaint against HP’s winning that Navy contract. The GAO released a redacted version of its decision earlier today. The chief complaint was on pricing: Harris said that if the Navy had really done its homework, it would have concluded that HP’s price was “unreasonably low.” Never mind that the Navy found pricing problems with different aspects of all the initial bids (some bits were thought to be too high, some too low) and forced them all to revise their proposals.

The more colorful bit is that Harris complained that a naval officer leading the project was found to have what’s being described as an “adulterous relationship” with an executive of defense contractor Booz Allen Hamilton, which had been tapped to help the Navy select which company was going to build and operate its network. The Navy, Harris argued, “failed to investigate whether [the Navy program manager’s] behavior had impacted the integrity of the procurement,” in such a way that it might have benefitted HP.

The Naval officer in the case, Capt. Shawn Hendricks, according to this report in The Navy Times, “torpedoed his career,” over the affair, and the woman, who has not been named, lost her job. The GAO said Harris failed to draw a logical connection between one and the other. Who knew these government contract procedures were so juicy? (You can read the GAO’s decision on all this below.)

Anyway, the second bit of good news is in a sector that has seen nothing but bad news in recent months and years. According to a report in CRN citing preliminary market data, HP appears to have reversed an eight-quarter slide in its share of servers sold.

That’s interesting for two reasons. First, it was only five months ago that HP rival Dell, citing similar preliminary market data, was bragging about how its gains over HP were “staggering.” Dell has since taken an especially aggressive posture, slashing prices in an attempt to give HP and everyone else headaches in the market.

In response, HP CEO Meg Whitman has been rallying the troops and pushing for a response to Dell. During a conference call last month she insisted that HP has to “execute better,” and if the data is to be believed, it may be paying off.

Remember also that the unit that sells servers — the beefy $30 billion business unit — just saw a big management shake-up when its head, Dave Donatelli, was reassigned to a still-unspecified role within the company. Former COO Bill Veghte took over the unit, though it’s hard to easily attribute such a sudden change to a management shift.

More likely: HP stepped up with its own aggressive behavior while Dell was focused on its $25 billion leveraged buyout. Now that that transaction is wrapped up, Dell may not be so vulnerable. Next quarter’s data will give a strong hint.

And while today may look like an unusually good day for HP, it’s also turning out, at least for its investors, to be a good year. If you bought HP shares early in 2013, you have your own reasons to be happy: The shares are up more than 74 percent this year.

GAO-Harris complaint.pdf

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