Looking at the powerhouse Hewlett-Packard has become, it’s hard to remember how uncertain its future seemed just five years ago.

Carly Fiorina had been pushed out of the CEO chair after six years. Her controversial acquisition of Compaq in 2002 had achieved what appeared to be mixed results. And competitors like Dell and IBM held ironclad leads in areas where they competed with HP.

“Five years ago, you would have said Dell was supreme,” said Roger Kay, an analyst at Endpoint Technologies Associates. “And you would have said HP was all tangled up in its underwear.”

No more. HP’s strategy to reinvent itself through acquisitions has turned the company into a juggernaut. Today, Dell is on the ropes. IBM’s leadership is under pressure to match the performance of its Palo Alto rival. And HP has pulled so far ahead of every company on the SV150, its position now seems unassailable for at least the next decade.

For the last four quarters, HP posted $117 billion in revenue, 2.5 times that of Apple, the second company on the list. Apple has had its own remarkable turnaround, though it’s done so through innovation rather than acquisition.

But even if Apple continues its momentum, it’s unlikely to close the yawning gap in revenues. The best chance of anyone giving HP a race would be if Cisco Systems or Oracle, which have their own sharklike acquisition appetites, pull off some kind of megamergers. Google remains a bit of a wild card, depending on how far Internet advertising can really carry it.

For now, HP’s streak of being No. 1 for each of the 25 years we’ve published the SV150 appears safe. But that’s a very different position for the company than 10 years ago.

After HP spun off Agilent Technologies in 1999, its lead on the SV150 in 2000 shrank to $48.8 billion over Intel’s $33.7 billion.

Since then, HP has spent more than $45 billion on acquisitions, including $3.1 billion on 3Com, its fourth-largest purchase during this spree, which just closed last week. And it’s probably not even close to being done. In a note sent to clients last week, Brenon Daly, an analyst at The 451 Group, which follows mergers and acquisitions, wrote:

“We understand from a couple of different sources that although HP is looking to do fewer deals, they will be larger.”

That’s a scary prediction for HP’s rivals.

To understand the impact of HP’s turnaround strategy, I decided to look back at the company’s performance since it began the acquisition binge. The growth is truly incredible:

• HP went from 86,200 employees in 2001 to 304,000 in 2009.

• Its market cap has grown from $32 billion in 2001 to $126.1 billion.

• Earnings per share are up from 89 cents in 2001 to $3.88 in 2009.

• The stock has risen from $23.21 a share on Aug. 31, 2001 — the day before the Compaq deal was announced — to $54.23 on Thursday. That’s up 134 percent compared with a 12 percent increase in the Dow Jones industrial average.

• And the company went from generating $2.5 billion in cash in 2001 to $13.4 billion last year, giving HP an even bigger war chest to secure its fortress.

Not all of this has gone perfectly. Along the way, HP issued a ton of stock, which has diluted shareholder value. In 2002, HP had about 1.9 billion shares, but today it has about 2.4 billion shares on the market. The company is currently spending $12 billion to buy back shares to reduce that dilution.

This era has been painful for some employees, as I wrote in a column earlier this year. HP has paid $5.5 billion in severance to cut 75,505 jobs. At the same time, HP has filled almost an equivalent number of spots. It’s a staggering amount of churn. And despite the financial results, it’s a brutal level of job cuts that’s shocking for a company facing neither collapse nor bankruptcy.

I’m not going to try to render judgment on the success or failure of Fiorina’s tenure. And I’m not going to attempt to untangle the messy knot of whether Fiorina or current CEO Mark Hurd deserves the bulk of the credit for this turnaround. There are just too many external factors, like the economy and shifts in technology, to draw clear lines around these issues. And besides, I don’t think it’s important.

From where I sit, the last nine years at HP have been a continuum in terms of strategy. At a fundamental level, that strategy was identified by Fiorina and continued under Hurd: Buy lots of companies; overhaul personnel; steamroll the competition.

I’ll let others fight over who gets the credit. But as for the overall strategy for reinventing the company, the verdict is clear: It was the right one.

Source : MercuryNews.com