The 5 Dumbest Things on Wall Street: Aug. 27


(5 Dumbest updated with latest bidding on 3Par.) 5. HP, Still Seeking a General, Heats Up Bidding War

If HP (Stock Quote: HPQ) is trying to show that it's not on auto pilot under an interim CEO, then the decision to battle Dell (Stock Quote: DELL) for 3PAR (Stock Quote: PAR) is sure as hell an expensive way to do it.

HP plowed headlong into what became an all-out bidding war with Dell by Thursday. Apparently both parties are desperate to get their hands on an unprofitable business that has yet to prove its potential. The whole affair has that care-free 1999 feel to it -- and we all know what happened in 2000.

Dell originally offered $18 a share, or $1.15 billion, for 3Par earlier this summer. HP entered the fray with a bid of $24. By the end of the day on Thursday, HP had raised its offer to $27 a share, besting the $24.30 bid Dell issued earlier that day. This morning, Dell claimed victory by announcing 3Par had accepted its $27 cash bid, valuing the deal at $1.8 billion. HP has already come back with an offer of $30.

The bidding war has pushed 3Par's stock up 73% so far this week, as the value of the deal approaches a premium of nearly $1 billion over 3Par's original value when Dell first offered $1.1 billion two months ago. Let's repeat that: a $1 billion premium for a company that isn't profitable.

Mind you, we're not saying that 3PAR doesn't have potential. As TheStreet's Scott Moritz proclaimed when HP's initial bid was announced: "Storage is hot." And yes, the whole "cloud computing" conceit potentially offers great economies in the form of data storage costs. But potential -- as our great-grandpappy Carnegie used to say -- ain't the same thing as profits.

Everybody who's anybody in tech these days has, of course, already taken to the cloud -- from Cisco (Stock Quote: CSCO) to IBM (Stock Quote: IBM) to Oracle (Stock Quote: ORCL) to Dell. HP's been heading in that direction, too, and interim CEO Cathie Lesjak, who took the reins after Mark Hurd's "resignation", made the point in the recent earnings call that HP is building for the "future in the data center and converged infrastructure."

Dell's bid for 3PAR must have made HP nervous. So much so that it's willing to throw its weight -- and its cash -- around wantonly. It all just seems a tad bit desperate -- and certainly lacking in originality.


Is 3PAR really worth eight times revenue? Or is that just the price HP is paying to show it's still alive?

One thing is clear, HP under the interim leadership of Lesjak isn't any different than under Hurd. The company is still paying top dollar to acquire technology that it hasn't had the wherewithal to build itself. This is one of the most costly means of expanding the company's competencies, as the now skyrocketing price for 3PAR shows. For a company that was once a technology leader, these acquisitions sound more like an admission -- an admission that the company is no longer capable of innovation on its own.

4. Poor Reception for the Radio Industry

The biggest problem facing the radio industry isn't Sirius/XM's satellite radio or Pandora's streaming music. Nor is it listener revolt because every other song is by a 16-year-old with a Moe Howard haircut.

No, it is because not enough cell phones and PDAs come with an FM tuner. At least that seems to be what the National Association of Broadcasters and the Recording Industry Association of America think. You may remember the RIAA as the industry group that spent as much as $64 million pursuing music pirates for a $1.4 million return and priceless bad publicity.

Banded together by their mutual desire to collect otherwise ignored royalty payments, the groups are now asking Congress to require that all new cell phones come equipped with an FM radio receiver. (Welcome to 1934!) Motorola, Samsung, LG, Research in Motion, HTC and Apple would all be on the hook for the cost to implement this unnecessary, undesired gizmo.

The pitch is that this is a public safety issue. These kids today will be preoccupied playing Plants Vs. Zombies or texting their BFFs and then -- blammo -- an unexpected tornado will touch down. An FM receiver would save their lives -- and throw in the added bonus of even more Coldplay and Ke$ha!

The Consumer Electronics Association, in its own letter to Congress, sums it up well: "It is simply wrong for two entrenched industries to resolve their differences by agreeing to burden a third industry -- which has no relationship to or other interest in the performance royalty dispute -- with a costly, ill-considered and unnecessary new mandate."


Still, in the meantime, could someone please ask the government to force eight-track tape compatibility with the Blackberry? We're desperate to crank up some old Foghat.

3. Apple TV: Making a Lousy Idea Worse

Kudos to Apple (Stock Quote: AAPL) for repeatedly banging its head against the TV industry. After two failed attempts to reinvent the set-top box and a go-nowhere monthly "best of TV" subscription plan, Apple is now hoping a buck-a-show rental service will be a winner.

So far, only Disney seems willing to play along with Apple's idea to use iTunes to charge users 99 cents for two-day rentals of some TV shows, according to Bloomberg Businessweek and a number of follow-up reports.

Unlike the sweeping success that iTunes was for the record business, video programming is an entirely different prospect. Apple craves control and loathes the anarchy of the Internet. The natural solution, therefore, is to push an iTunes approach. But here's where Apple's plan turns rotten.

Unlike music, where record companies had no way to sell songs in a market awash in free "stolen" tunes, the TV industry has not lost control of its programming. And more importantly, Internet broadcasts are a source of revenue.

TV ain't broken, yet Apple proposes a fix.

Meanwhile, we all know that Disney is completely interested in this plan purely on its obvious merits. We would never imply that the House of Mickey is playing along because Apple CEO Steve Jobs is the company's largest individual shareholder. That would just be irresponsible of us.

2. Moynihan's Confidence Game

At least one person getting banged up by Bank of America's stock-slide is still bullish.

According to a Securities and Exchange Commission filing on Monday, newly minted CEO Brian Moynihan purchased 30,000 new shares at $13.03 apiece. If the former Fleet banker was trying to issue a signal of confidence to make up for the doom-and-gloom forecasts he issued a month earlier, it didn't work: Bank of America's stock hit a fresh 52-week low of $12.59 the next day, and another low of $12.42 on Wednesday. It closed at $12.47 on Thursday, down 3.1% for the week.


Bank of America's stock has been on a fairly steady freefall due to a variety of crises that erupted in the spring. It's down 35% since mid-April and down 18% since reporting results on July 16. On a conference call, Moynihan and his management team painted a dire picture of the cost of the recently-passed financial reform bill. They said new measures would reduce revenue by more than $4 billion per year, and cause a goodwill write-down of $22 billion for its credit-card business, $7 billion to $10 billion of which will come in the third-quarter.

Double ouch.

Bank of America's specificity was something that competitors JPMorgan Chase (Stock Quote: JPM) and Citigroup had tried to avoid altogether, while Wells Fargo outlined only some reform costs. In fact, since the start of the bank-stock decline in mid-April, and since Bank of America reported results, the stock has underperformed virtually all its peers.

Even the pink-sheet zombie stocks of Fannie Mae and Freddie Mac -- which are still in the bail-out phase, preparing for dissolution -- have performed better.

Triple ouch.

Moynihan's new 30,000 shares have lost $16,800 since the CEO made the insider buy. The other 424,000 shares he has acquired through executive positions, through a 401(k) plan and through a family trust have lost $1.2 million since he took the helm on Jan. 1. Perhaps he should just buy a whole lot more stock -- you know, send another vote of confidence. Or, then again, maybe not.

1. Dell Introduces Not-So-Smartphone

Dell launched its first smartphone, The Aero, to the U.S. market on Tuesday, touting the product's affordable $100 price tag. But as smartphones go, The Aero may be more of an expensive paperweight. While the Aero is certainly more affordable than much of the rest of the smartphone pack (like the Droid 2 and iPhone 4G, which both retail for $200 with a service plan), its operating system leaves it lagging well behind. The phone uses the outdated Android 1.5 software -- first released in early 2009 -- leading PC World to dub the phone "an embarrassment to Android." (The latest version of Android, 2.2, launched in May.)

Also notable is the phone's launch on the AT&T network, which has well-documented signal problems, as any New Yorker with an iPhone will tell you. On the plus side, the Aero features a 5-megapixel camera with an 8x zoom, GPS and support for Flash. It also weighs in at less than four ounces, making it one of the lightest Android phones.

The Aero comes on the heels of Dell's first Android tablet, the five-inch Streak, released earlier this month. That device, considered something of a "hybrid" between a phone and a tablet PC, retails for $300 with a two-year AT&T plan and $550 without.

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