Investor Worry Over HP Has Peaked, Analysts Say - InformationWeek

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9/29/2006
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Investor Worry Over HP Has Peaked, Analysts Say

A congressional hearing on Hewlett-Packard's involvement in pretexting hasn't hurt the company financially and probably won't in the future, experts said.

A congressional hearing on Hewlett Packard's involvement in pretexting has not hurt the company financially and probably will not in the future, experts said.

"With a high level of confidence in President and CEO Mark Hurd, who was also named chairman last week, and strong projections for the next year or two, investors will most likely see the most recent scandal as more of an "outlier" or "speedbump," said Chris Robertson, Associate Professor of International Business at Northeastern University's College of Business Administration, said. "A series of mishaps would be different, signaling a more deeply seeded dark side to the HP corporate culture. So far, this looks like a few poor decisions made by the board but a problem that can be fixed by a strong leader like Hurd."

Robertson said the scandal is unlikely to affect the buying habits of customers loyal to the HP brand.

"HP products have fared well with consumers lately; and, although this is a chink in the armor, the overall HP reputation is still solid with their target market," he said. "I see investors' recognizing that ongoing consumer support trumps the recent predicament that the HP board has faced."

A Merrill Lynch report released this week said, although the board investigation continue to receive media coverage, analysts believe the "peak of investor worry" has passed and the scandal is likely to diminish as a distraction for HP management

The report said that Hurd's testimony during a U.S. House of Representatives subcommittee hearing Thursday should help boost investor confidence.

"Hurd recognized the existence of a breakdown in controls and elaborated on steps that HP is taking to address the issue," the report stated. "Our opinion is that Hurd's testimony was convincing. He appeared to satisfy the committee's desire for someone to take accountability yet he also distanced himself from the pretexting activities, in our opinion. Our belief that Mark Hurd will remain at HP's helm is further solidified after the testimony. We believe investor sentiment will improve on the issue and the focus will begin to shift back toward fundamentals."

The report said that the only thing in former board chair Patricia Dunn's testimony that was related to Hurd was her mention of an e-mail that contained a description of a plan to send a bogus news tip to a reporter through e-mail. Though the e-mail contained a tracer, and HP employees acknowledged that they had used tracers before, nothing linked Hurd directly to the tracer or to investigators who lied to obtain phone records.

Employees stated that the company had used tracers before and employees acknowledged that they were aware investigators used fraudulent, and probably illegal, means to obtain personal phone records of journalists, board members and others.

Several investigations into HP's media leak scandal, and the company's involvement in using fraud, are continuing.

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