Omaha, Nebraska – Warren Buffett’s Berkshire Hathaway has sold off over $619 million worth of Hewlett Packard (HP) stock over the past few weeks, reducing its stake in the technology company by around 20%. SEC filings show that Berkshire sold over 23 million HP shares between September 11th and October 3rd, likely taking a loss on the investment.
This sell-off brings Berkshire’s ownership in HP below the 10% threshold, meaning Buffett could continue selling without having to disclose it right away. Given HP’s deteriorating business conditions, further sales may be likely.
Berkshire originally built its position in HP in early 2021 when shares were trading in the mid-$30s. With the recent sales occurring at an average of $26.84 per share, Buffett is certainly selling at a loss. This move signals a souring view on the long-term prospects of HP’s core PC and printing businesses.
The COVID-19 pandemic initially boosted demand for HP’s products as remote work and learning drove PC and printer sales up sharply in 2020 and 2021. However, growth rates have plunged over the past year as pull-forward demand has been satisfied. HP’s sales over the last 12 months have actually dropped below pre-pandemic levels as macroeconomic headwinds like high inflation have dampened consumer and business spending.
In HP’s recent Q3 earnings release, CEO Enrique Lores cautioned that “the external environment has not improved as quickly as anticipated and we are moderating our expectations as a result.” Both the PC and printer markets face slowing demand trends along with intense competition, pressuring HP’s margins and profits.
According to IDC, global PC shipments are forecast to drop almost 14% in 2022 and are only expected to rise 3.7% in 2024. The long-term outlook is for around 3% annual growth, with Apple steadily gaining share, especially as Microsoft ends Windows 10 support in 2025. The printing market faces similar stagnation, with e-signature adoption and digitization trends hampering printer hardware and supplies sales.
HP’s operating margin has contracted from 8.6% to 7.2% over the past year, underscoring its challenged competitive position. While valuation appears cheap at just 7 times forward earnings, the business no longer seems poised for a growth rebound.
In a statement on the sales, Buffett commented: “When we first bought HP, pandemic-driven demand had boosted sales substantially. However, as the pull-forward demand has been satisfied, the underlying challenges facing the PC and printer markets have become more apparent.”
He continued, “HP’s business is no longer positioned to deliver the kind of upside we look for in an investment. While the company maintains a strong market position, the competitive dynamics have changed for the worse. We believe our capital can be better deployed into more promising opportunities.”
Many investors see the HP sale as a textbook example of Buffett’s discipline in recognizing when the investment thesis around a business has deteriorated. Rather than hoping for a turnaround, he is decisively moving on to more attractive stocks. The sale also frees up capital for Berkshire to continue hunting for bargains during the recent market downturn.
Bill Ackman of Pershing Square Capital, a long-time Berkshire shareholder, stated: “This move reflects Buffett’s pragmatism as an investor. He analyzes each holding based on the fundamentals, not emotion. Once the facts change, his decisions change.”
With Berkshire’s massive $300 billion cash stockpile, investors are eagerly watching to see which sectors and companies Buffett begins to build new positions in. He has emphasized favoring value stocks with pricing power and strong free cash flow generation. But in this uncertain environment, Buffett is biding his time, waiting for the right fat pitch.
As Charlie Munger emphasized at the last Berkshire annual meeting, “It’s hard to find anything that’s incredibly attractive when everybody’s gone crazy.” For now, trimming losses on HP allows Berkshire to shore up cash while continuing the hunt for good deals. But with Buffett at the helm, most investors remain confident that bargains will be found.