) resolved its long-standing federal investigation by paying $108
million to the U.S. Department of Justice (DOJ) and U.S.
Securities and Exchange Commission (SEC). H-P's questionable
practices of securing and retaining government contracts in
Poland, Mexico and Russia were the prime reasons for the
Both the federal agencies were investigating the
second-largest PC vendor for violation under the U.S. Foreign
Corrupt Practices Act (FCPA). The Act deems any payments made to
foreign government officials to secure or retain business as
Allegedly, in Russia, H-P paid approximately $2 million
between 2000 and 2007 to retain a certain contract with the
federal prosecutor's office. These dealings took place through
various agents and shell companies. Similar practices were
followed in Poland and Mexico where H-P officials paid bribes
worth $600k and close to $1 million, respectively, to obtain
H-P claimed that the officials conducting these malpractices
had left the company and agreed to take on a strong compliance
and internal anti-corruption measure to ensure that such
incidents are not repeated.
H-P, however, is not the sole offender since bellwethers such
) have come under the scanner for similar malpractices.
Reportedly, Alcoa settled its dispute by paying $384 million in
January this year.
From a broader perspective, despite the FCPA keeping a keen
eye on malpractices of U.S. companies on foreign soil, such
incidents are not rare. Moreover, the companies are usually
charged with penalties that are miniscule compared with the
revenues generated from these contracts. Large corporations
generally pay and move on.
In H-P's case, though the current settlement will affect
short-term results, the company's restructuring plans and
turnaround strategies will continue to improve its cash flows. We
remain encouraged by H-P's increased focus on high-margin
software and services, which is expected to boost results over
the long term. H-P's decision to take a software-and-service
centric approach is a strategic move, in our view.
The cannibalization of traditional PCs by tablets and other
mobile Internet devices makes this transition imperative. H-P is
witnessing growth across its converged infrastructure and the
emerging area of software-defined data centers. Moreover, solid
demand from its cloud, security and big-data solutions and
services are expected to drive revenue growth.
Nonetheless, continuing macroeconomic challenges, tepid IT
spending and competition from
International Business Machines
) and Oracle remain headwinds, going ahead.
Currently, H-P sports a Zacks Rank #2 (Buy).
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