Hewlett-Packard (HPQ), missed its Q3 analysts’ estimates on slumping demand for printers, data-center equipment and services. The company also announced that it will cut 27,000 jobs, or about 8 percent of its staff.

Hewlett-Packard, said the job cuts will last through October 2014, and the company also plans to eliminate jobs through firings and early retirement offers. The job cuts are expected to produce annual savings of as much as $3.5 billion.

Many of the cuts will come from the ailing enterprise services group, which manages data centers and provides technology consulting. Services demand has slowed, and the division’s profitability has declined amid competition from companies such as IBM, Infosys and others in the market for managing companies’ IT operations.

In the PC market, Hewlett-Packard is fighting Apple’s rising market share for its Mac computers and iPad tablet. Hewlett-Packard’s report follows No. 3 PC maker Dell Inc.’s forecast yesterday for lower-than-projected sales for the quarter ending in July, as demand for smartphones and tablet computers erodes PC sales.

Tablet sales are cutting into those of traditional laptops: 118.9 million tablet devices will be sold in 2012, almost doubling from 2011, according to market-research firm Gartner Inc., with Apple accounting for 61.4 percent of the market. PC shipments worldwide will rise 4.4 percent to 368 million this year, Gartner estimates.

These cuts will do very to help HP and it will take years for the company to find its footing, if it ever can.

Customers want help modernizing business applications, retooling data centers for Internet-delivered cloud-computing software, and analyzing reams of data, and Hewlett-Packard doesn’t have enough experts in those areas to win deals, according to former CEO Leo Apotheker.

Just as President Obama comes to the bay area to tout the success of his job creation plan, Meg Whitman, will be announcing one of HP’s biggest layoff.

Whitman is expected to announce the cutting between 25,000 and 30,000 jobs. It will be the first of many layoffs, as she tries to turn HP around. HP has 360,000 employees today up from 60,000 in 2001. The company has already laid off 120,000 in the last few years.

Dell shares tumbled 18% this morning after the company missed its April quarter earnings report.

Dell reported FY Q1 revenue of $14.42 billion and profits of 43 cents a share, falling short of Street estimates at $14.9 billion and 46 cents. The company also projected that next quarter’s revenue will come in lower than expect at $14.71 billion versus $15 billion.

Dell Chief Financial Officer Brian T. Gladden admitted during the company’s first-quarter 2013 earnings conference call that its results “were mixed.” Though it didn’t mention the iPad by name, PC maker Dell did say that “alternative mobile computing devices” had an impact on its sales that contributed to poor performance last quarter.

Dell is struggling to survive in what has become an Apple world. Apple’s iPads are selling on average 11-14 million per quarter. The iPad dollars were previous going to Dell and others.

Dell is facing the same challenges with iPads as RIMM is with Apple’s iPhones. The only salvation is that Dell is more that just a PC seller today. Regardless, the comparisons are strikingly similar.

Michael Dell famously said in 1997 that, the Great Almighty Lord God Steve Jobs should shut down Apple and “give the money back to the shareholders.” The Great Steve Jobs pointed out in 1996 that his rival “wasn’t perfect at predicting the future”. As of the close of market on Tuesday, Apple’s market capitalization was nearly 20 times that of Dell.

One more thing, I think Michael Dell should shut down Dell and give the money back to the shareholders.

After Yahoo fired CEO Scott Thompson for lying on his resume, it promoted Americas boss Ross Levinsohn to “Interim CEO.”

But Levinsohn is not the same kind of “interim” CEO that Yahoo CFO Tim Morse was last fall.

Morse’s job was to be a placeholder while the board formed a search comittee to find an eventual replacement to Carol Bartz.

Levinsohn, we’re told by sources who have spoken to Yahoo executives and board members, has been instructed to go run the business as if he were Yahoo’s permenant CEO.

And indeed, the board has yet to form a search comittee.

This is good news for Yahoo. It needs – right now – someone at the top who feels like he can make organizational and strategic decisions without consulting the board.

Is it good news for Levinsohn? That’s harder to say. Yahoo has, after all, gone through five other CEOs since 2007.

Source SAI

Many assumed Apple’s process of developing new products would suffer without the oversight of its visionary leader Steve Jobs, but according to the head of Apple’s design department, it has mostly been business as usual since Jobs left the company.

“We’re developing products in exactly the same way that we were two years ago, five years ago, ten years ago,” said Jonathan Ive, senior vice president of industrial design at Apple, in an extended interview with The Telegraph. “It’s not that there are a few of us working in the same way: there is a large group of us working in the same way.”

In fact, Ive goes on to argue in the interview that Apple’s ability to innovate didn’t stop when Jobs left the company. It lives on in the creative power of his design team.

“We have become rather addicted to learning as a group of people and trying to solve very difficult problems as a team,” Ive said. “And we get enormous satisfaction from doing that.”

Source: SAI

Facebook’s stock had been in a free fall since it hit the public markets.

This morning, it’s actually up, but the company isn’t out of the woods just yet.

What exactly is happening here? Why was the stock falling? And why does the IPO suddenly look like a disaster?

Some of you already know the answers to those questions. For the rest of you, we have this simple guide, which tries to the best of our ability to explain everything that’s going on in clear, plain English.

The one sentence explanation of all that’s gone wrong: Facebook’s stock fell almost immediately after it hit the public markets because investors just didn’t think it was a $100 billion company, and this has led to all sorts of other problems.

Here’s a more detailed explanation about everything that went wrong.

Facebook priced its IPO at $38 last Thursday night. What this means is that Facebook, along with its underwriters, the big banks that are running the whole thing, decided Facebook’s stock was worth $38 a share, which was a $104 billion valuation for the whole company.

When a company IPOs it sells its shares to big institutional investors and other clients.

Those clients can then take the stock they bought and sell it to the greater public, like you and I. They thought you and I were going to go crazy and buy the IPO at any price possible.

They thought we were going to buy it for, say, $75 a pop. We didn’t.

As a result, the stock didn’t pop. And those people didn’t get to make a bunch of money for free.

Naturally, this annoyed them.

But why didn’t we normal people buy it for $75 a share?

We can’t say with 100 percent certainty because markets are impossible to fully understand, but here’s our best guesses as to what happened:

• The NASDAQ screwed up. The exchange that Facebook stock actually trades through was not ready for a huge volume of trading on Friday when the stock hit the market. As a result, trading didn’t start on time and when it did, the stock was at $42 to start. That’s a 10 percent gain, which is pretty good for doing nothing, but investors are greedy and wanted more.

• There was a lot of Facebook stock available. The more stock supplied, the easier it is to meet demand. Since Facebook was offering a lot of stock, investors could easily get what they wanted at a price they liked.

• Facebook just isn’t worth $38 a share, and people knew it. Facebook’s current business is spectacular, but it doesn’t support a $38 a share price. Most people realized this so they didn’t buy the stock. For more, click here.

So, is this a total disaster for Facebook?

This part of it is not a disaster.

From Facebook’s perspective, this is actually a good thing. It got a good deal on its IPO. Facebook managed to sell its shares at a very high price, which means it got to raise a lot of money.

The investors who are crying now have no one to blame but themselves. Besides, they were just trying to make a quick buck flipping the company. Facebook’s stock could (should?) rise above its IPO price eventually. Investors who bought in at $38 will eventually be happy.

That said, there is a disaster lurking for Facebook.

Apparently, Facebook’s Chief Financial Officer, David Ebersman, told analysts at banks that they were being too aggressive in their forecasts with Facebook’s revenue and earnings. He told them to lower their guidance.

These analysts then reportedly conveyed this information to big institutional investors. This information was never conveyed to people like you and me in plain English.

This seems to be unfair at best, illegal at worst. We’ll find out more because lawsuits and investigations are underway.

This is why, even with Facebook’s stock up today, it still has a long road ahead.

Source: SAI

Facebook shareholders just filed a class action suit against Facebook and Morgan Stanley.

The firm handling the suit is Robbins Geller, which won $7 billion from Enron bankers.

Click here to see the complaint.

They are suing over the allegation that analysts at Facebook’s IPO underwriters cut their estimates for the company in the middle of the IPO roadshow—and only told institutional investors about this change, not everyone interested in buying Facebook stock.

The suing lawyers argue that this information did not find its way into Facebook’s prospectus, which meant the prospectus “contained untrue statements of material facts.”

Last night, we reported that one of the underwriter’s analysts said he was told by a Facebook financial executive to cut his estimates.

Here is the meat of the complaint:

20. The Registration Statement and Prospectus contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and were not prepared in accordance with the rules and regulations governing their preparation.

21. With regard to the Company’s expectations for the second quarter of 2012, the Registration Statement and Prospectus stated, in pertinent part, as follows:

Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of [daily active users] increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions.

22. In describing the risks related to Facebook’s business and industry, the Registration Statement purported to warn that the Company’s revenues could be negatively affected by the rate of growth in mobile users of its site or app.  The Registration Statement and Prospectus stated in pertinent part as follows:

Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results.

We had 488 million [monthly active users] who used facebook mobile products in March 2012. While most of our mobile users also access Facebook through personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. We have historically not shown ads to users accessing Facebook through mobile apps or our mobile website. In March 2012, we began to include sponsored stories in users’ mobile News Feeds. However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.

23. The Registration Statement and Prospectus also purported to warn investors that the Company’s revenues from advertising could be adversely affected by, among other things, the “increased user access to and engagement with facebook” through mobile devices.  In that regard, the Registration Statement and Prospectus stated, in pertinent part, as follows:

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.

The substantial majority of our revenue is currently generated from third parties advertising on facebook. In 2009, 2010, and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87%, and 82%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including:

• decreases in user engagement, including time spent on facebook;
• increased user access to and engagement with facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;
• product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on facebook;
• our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;
• decisions by advertisers to use our free products, such as facebook Pages, instead of advertising on Facebook;
• loss of advertising market share to our competitors;
• adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;
• adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;
• our inability to create new products that sustain or increase the value of our ads and other commercial content;
• the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;
• changes in the way online advertising is priced;
• the impact of new technologies that could block or obscure the display of our ads and other commercial content; and
• the impact of macroeconomic conditions and conditions in the advertising industry in general.
• The occurrence of any of these or other factors could result in a reduction in demand for our ads and other commercial content, which may reduce the prices we receive for our ads and other commercial content, or cause advertisers to stop advertising with us altogether, either of which would negatively affect our revenue and financial results.

24. The statements referenced above in ¶¶ 21-23 were untrue statements of material fact.  The true facts at the time of the IPO were that Facebook was then experiencing a severe and pronounced reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices rather than a traditional PC such that the Company told the Underwriter Defendants to materially lower their revenue forecasts for 2012.  And, defendants failed to disclose that during the roadshow conducted in connection with the IPO, certain of the Underwriter Defendants reduced their second quarter and full year 2012 performance estimates for Facebook, which revisions were material information which was not shared with all Facebook investors, but rather, was selectively disclosed by defendants to certain preferred investors and omitted from the Registration Statement and/or Prospectus.

25. On May 19, 2012, in an article entitled “Morgan Stanley Was A Control-Freak On Facebook IPO – And It May Have Royally Screwed Itself,” Reuters reported that “Facebook . . . altered its guidance for research earnings last week, during the road show, a rare and disruptive move.”

26. On May 22, 2012, in an article entitled “Insight: Morgan Stanley cut Facebook estimates just before IPO,” Reuters reported that that Facebook’s lead underwriters, Morgan Stanley, JP Morgan and Goldman Sachs, all cut their earnings forecasts for the Company in the middle of the IPO roadshow and that only a handful of preferred investor clients were told the news of the reduction.  In that regard, the article stated, in pertinent part, as follows:

In the run-up to Facebook’s $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank’s consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.

The sudden caution very close to the huge initial public offering, and while an investor roadshow was underway, was a big shock to some, said two investors who were advised of the revised forecast.

They say it may have contributed to the weak performance of Facebook shares, which sank on Monday – their second day of trading – to end 10 percent below the IPO price. The $38 per share IPO price valued Facebook at $104 billion.

The change in Morgan Stanley’s estimates came on the heels of Facebook’s filing of an amended prospectus with the U.S. Securities and Exchange Commission (SEC), in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices. Mobile advertising to date is less lucrative than advertising on a desktop.

“This was done during the roadshow – I’ve never seen that before in 10 years,” said a source at a mutual fund firm who was among those called by Morgan Stanley.

JPMorgan Chase and Goldman Sachs, which were also major underwriters on the IPO but had lesser roles than Morgan Stanley, also revised their estimates in response to Facebook’s May 9 SEC filing, according to sources familiar with the situation.

Morgan Stanley declined to comment and Devitt did not return a phone message seeking comment. JPMorgan and Goldman both declined to comment.

Typically, the underwriter of an IPO wants to paint as positive a picture as possible for prospective investors. Investment bank analysts, on the other hand, are required to operate independently of the bankers and salesmen who are marketing stocks – that was stipulated in a settlement by major banks with regulators following a scandal over tainted stock research during the dotcom boom.

The people familiar with the revised Morgan Stanley projections said Devitt cut his revenue estimate for the current second quarter significantly, and also cut his full-year 2012 revenue forecast. Devitt’s precise estimates could not be immediately verified.

“That deceleration freaked a lot of people out,” said one of the investors.

Scott Sweet, senior managing partner at the research firm IPO Boutique, said he was also aware of the reduced estimates.

“They definitely lowered their numbers and there was some concern about that,” he said. “My biggest hedge fund client told me they lowered their numbers right around mid-roadshow.”

That client, he said, still bought the issue but “flipped his IPO allocation and went short on the first day.”

“VERY UNUSUAL”

Sweet said analysts at firms that are not underwriting IPOs often change forecasts at such times. However, he said it is unusual for analysts at lead underwriters to make such changes so close to the IPO.

“That would be very, very unusual for a book runner to do that,” he said.

The lower revenue projection came shortly before the IPO was priced at $38 a share, the high end of an already upwardly revised projected range of $34-$38, and before Facebook increased the number of shares being sold by 25 percent.

The much-anticipated IPO has performed far below expectations, with the shares barely staying above the $38 offer price on their Friday debut and then plunging on Monday.

Companies do not make their own financial forecasts prior to an IPO, and underwriters are generally barred from issuing recommendations on the stock until 40 days after it begins trading. Analysts often rely on guidance from the company in building their forecasts, but companies doing IPOs are not permitted to give out material information that is not available to all investors.

Institutions and major clients generally enjoy quick access to investment bank research, while retail clients in many cases only get it later. It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly. The firm declined to comment when asked who was told about the research.

“It’s very rare to cut forecasts in the middle of the IPO process,” said an official with a hedge fund firm who received a call from Morgan Stanley about the revision.

27. As of the date of the filing of this complaint, the 421 million shares of Facebook common stock sold in the IPO are trading at approximately $31 per share, or $7 per share below the price where plaintiffs and the Class purchased $16 billion worth of Facebook stock while defendants pocketed billions of dollars.  Plaintiffs and the Class have suffered losses of more than $2.5 billion since the IPO.

Source: SAI

Now that Facebook’s public, and its stock has slipped below the IPO price, will it still be a hot place to work?

A stagnant stock price can dent employee morale—just ask Microsoft or Yahoo. But Facebook’s stable pre-IPO price and its post-IPO gyrations may have less of an impact than one might think on its appeal as an employer. To understand why, there are three letters you need to know: RSU, or restricted stock units.

With restricted stock units, Facebook can buy the happiness of just about any prospective hire, regardless of what happens with the stock on a day-to-day basis. In fact, Facebook’s been doing that for years, as a private company.

We asked Facebook for comment on this story, but the company’s in a post-IPO quiet period. That’s okay. We can fill you in.

As far back as 2007, Facebook executives realized that the company’s growing number of options-holding employees would push it over the 500-shareholder limit that the SEC imposes on firms that wish to keep their financials private. That’s the limit that forced Google’s wary cofounders, Larry Page and Sergey Brin, to take that company public in 2004.

With Google’s example in mind, Facebook management switched from primarily issuing stock options to granting restricted stock units. Unlike stock options, restricted stock units give employees shares, plain and simple—there’s no strike price, no need to front cash to exercise the options. (There are some less-favorable tax implications, but those are too complex to get into here.)

Holders of RSUs didn’t count against the shareholder limit. They also couldn’t sell the shares underlying their RSUs on the growing secondary markets—only employees who had vested and exercised their options could do that. Oh, and some RSUs were subject to performance targets—meaning managers could take them away.

Facebook also frowned on employees selling shares on secondary markets, period—so even those who owned their shares outright pretty much had to quit if they wanted to sell, outside of a few company-sanctioned stock sales. That was a factor in employees’ departures in recent years, with Facebook valued highly but an IPO still too far off.

There’s one tremendous benefit to Facebook’s reliance on RSUs, though—and that’s the downside protection they give employees. An RSU for a share priced at $38 is worth $34 today. An option for a share with a strike price of $38 is worth $0 today. If you’re worried about a prospective employer’s stock going down or staying stagnant, RSUs are the way to go. (And since we believe a fair value for Facebook shares today is $20, that’s a reasonable worry.)

The vehicle of Facebook’s wealth creation was the 2005 Stock Plan. That plan is now over and gone, replaced by Facebook’s 2012 Equity Incentive Plan.

We read through the new plan. It’s fairly boilerplate stuff—what you would expect from a company that’s morphed from a raw startup to a giant of Silicon Valley. But a few provisions caught our eyes:

• No more billionaires: No employee can receive more than 2.5 million shares a year under the plan, except for new employees, who can get 5 million shares their first year on the job.

• No voting rights: Employees now get Class A shares, not Class B shares. Those carry fewer voting rights (which employees probably don’t care about anyway).

• No more lockups: RSUs issued prior to 2011 are locked up for six months following the IPO. RSUs issued after 2011 aren’t—though those grants have barely had time to vest.

Facebook CEO Mark Zuckerberg has been making it clear to employees since January that they need to keep their heads down and ship code. All things being equal, Facebook’s hacker culture, fast-changing product, and huge user base will keep engineers interested.

And the fact that there’s a real market for Facebook shares—a market that anyone can tap, not just the privileged few who traded in secondary markets—is itself attractive, points out Chris Crawford, COO of compensation consultancy Longnecker & Associates.

Bottom line, according to Crawford: “Despite these little pros and cons on currency, it’s still Facebook, it’s still early, and potential employees will want in on the action!”

Source: SAI

While Facebook IPOs, moves to a new campus and becomes a house hold name, Hewlett-Packard is planning one of its biggest layoffs, where it expects to cut between 25,000 and 30,000 people on Wednesday. This is in addition to the 120,000 layoffs its has done in the last few years.

HP, is a bloated company with no focus. Its employee head count has grown from 60,000 in 2000 to 360,000 today. Yet the markets it serves have remained the same. Its still a printer company in a age where no-one prints anymore (for sure young folks like me barely print anymore). I see this as the first leg of many more layoffs to come. I believe HP will be back to a 30,000 – 60,000 company in 5-7 years. Hence many more major layoffs are on the way.

HP’s demise also, affects many other valley companies like Intel, Net App, their suppliers and competitors. A smaller HP is bad for Intel, as it will buy less from Intel. There is no way, Intel can make up for the loss of HP’s business for a long time, if ever. This will spawn major layoffs in Intel’s supply channel. Expect Applied Materials, KLA and many others to be hit hard.

All this in turn will accelerate the downward spiral that Silicon Valley is on, one that I believe it won’t recover from. Silicon based technology is no longer a growth industry like its been for the past 50 years. Most of the large computation problems have been solved. The bay area and Silicon Valley, depend heavily on the tech sector, which is expected to take a big hit for years to come. That’s being optimistic.

Facebook and many of the social startups cannot absorb the massive layoffs to come. I see people leaving the valley in droves, home prices heading to the toilet, tax revenues drying up, crime going through the roof. Already, 30% of the many people in silicon valley eat at food banks and these are the good times (see 60 Minutes video). There is no time for foolish optimism. Its time for reality. The valley game is over.

Image source: Michael Totten

WPP’s new deal with Buddy Media—in which the company will become the “preferred social ad management partner” for GroupM, WPP’s media-buying arm—could signal an era of consolidation in the social media ad buying world.

It is the second recent deal in which a large ad agency holding company has locked in a relationship with an agency that specializes in Facebook ad buying.

Further consolidation won’t be cheap: With valuations in the social media/tech sphere currently through the roof, agencies like TBG Digital, AdParlor, and Adaptly, which also manage media buys on Facebook, Twitter, and other social media, are likely to price themselves expensively.

WPP’s Buddy media deal could be earth-shaking: WPP spent $200 million on Facebook in 2011, and CEO Martin Sorrell expects that to rise to $400 million this year. With Sorrell wanting to see his $5 million stake in Buddy Media pay off, there will be pressure on GroupM buyers to move their business from rival agencies—TBG, AdParlor, Adaptly, Blinq Media, 22Squared et al.—to Buddy Media and the Brighter Option unit it bought in February. Buddy media CEO Michael Lazerow believes this will eventually make his agency the single largest Facebook media buyer.

But the Buddy Media deal isn’t exclusive—meaning WPP’s various buyers will still be able to place Facebook ads through the rival agencies if they or their clients want to.

Those agencies have their own relationships with clients and, in terms of Facebook ad buying, they have larger staffs and (arguably) greater expertise than Buddy Media does (the Brighter Option buy only gave the company 21 staffers; TBG, for instance, has about 140 employees, of which 90 are analysts).

In other words, there will be fierce resistance in some quarters.

Also:

• The deal comes after Omnicom made a similar non-exclusive pact with Blinq Media.
• And Interpublic Group, famously, owns a stake in Facebook.

Clearly, Madison Avenue isn’t just sitting idly by while all these new startups siphon off Facebook ad-buying cash for themselves. That signals further deals to come.