H-P to Pay $108M to DOJ and SEC - Analyst Blog
10 April 2014 - 8:00PM
Zacks
Hewlett-Packard (HPQ) 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 investigations.
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 illegal.
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 government
contracts.
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 as
Juniper (JNPR) and Alcoa (AA)
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 (IBM) and Oracle remain headwinds, going
ahead.
Currently, H-P sports a Zacks Rank #2 (Buy).
ALCOA INC (AA): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
JUNIPER NETWRKS (JNPR): Free Stock Analysis Report
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