Oct 5, 2012 · 5 minutes

Pivots are the stuff of startup legends. YouTube's first version was a dating site called Tune in-Hook Up. Groupon grew out of a "social action platform" named The Point. The genesis of PayPal was a forgotten cryptography company called Confinity. Facemash preceded Facebook. Odeo begat Twttr. And on and on...

Older, bigger companies have their own version of the pivot, usually sold under the less sexy brand of the turnaround. They can't afford to shut down an existing business overnight when billions of dollars in annual revenue are at stake. Instead, they expand quickly into an unexpected market, often to great success. Apple's introduction of the iPod/iTunes combo paved a path into smartphones. Microsoft segued smoothly into enterprise software as PC sales cooled. Perhaps most dramatically, IBM went from a computer hardware maker to a software and services leader in a matter of years.

Meg Whitman, the beleaguered CEO of Hewlett-Packard, must look on those reversals of fortune and sigh with envy. A year into her effort to turn around HP, people already seem to be giving up hope on the company. Former employees say they can't see anything more to be done. All that's left is a long, slow decline for the company that started out as the archetypal Silicon Valley garage startup.

More and more, investors are buying into that sad narrative. This week, Whitman held her first “analyst day” since taking the reins at HP. After lowering the bar of expectations during the past few quarters, Whitman's task seemed simple enough: Sell the turnaround. Outline a plan that would show HP pivoting into a new golden era. Or if not that, just some way to jumpstart the aged jalopy that the company has become.

What Whitman offered instead was a vision that was even bleaker than the disillusioned expectations of investors and analysts. “It's going to take longer to right this ship than anyone would like,” she said. 2013 would be a “fix and rebuild year” -- making HP sound like the Red Sox of the tech world. But the rebuild year would also see worse earnings that most people were expecting.

Analysts turned HP's analyst day into an occasion to dump on the company, slashing price targets and lowering ratings. The company's stock fell 11 percent to below $15 a share -- its lowest level since April 2003 and a level that the company first traded at in October 1995. Which means you could have bought HP back when the OJ Simpson trial was wrapping up and sold it for the same price this week.

The bad news wasn't so much that HP's recovery was taking longer than anyone would like. Anyone but short-sellers (I'll get to them in a minute) would like HP to turn around right now. No, the really bad news was that there wasn't a clear path for HP to move into, so it could reverse its fortunes. It had no magical gadget like the iPod. And an IBM-like shift from hardware to software wasn't in the cards. Certainly not a full decade after IBM first tried it.

Richard Kugele, an analyst at Needham & Co. put it well: "How do you turn around a company that has headwinds within virtually every product category, a workforce that has been impacted by a revolving door of leadership and layoffs, and operates with a balance sheet that no longer has the flexibility for transformative acquisitions?” Or, to put it in startup jargon, where do you pivot when there's nowhere to pivot to?

It's tempting to blame Whitman for HP's troubles. After all, she's been on the job for more than a year, surviving longer than her immediate predecessor, Léo Apotheker. Her past success managing eBay may have had more to do with the wild popularity of eBay itself. (Back then, Whitman was noted for saying about managing eBay that “a monkey could drive this train.”) Infamously, Whitman would later oversee eBay's purchase of Skype, without even getting the company's prized technology.

But the truth is, HP's problems aren't Whitman's fault -- yet. They were caused by her previous tenants in the corner office, each of whom tried their own pivot-as-turnaround strategy, usually with expensive and, in retrospect, ill-advised acquisitions. Carly Fiorina paid $25 billion for Compaq, tugging the company into a PC business that would soon become commoditized. Apotheker paid $11 billion for Autonomy, a hearty push into software that Whitman later described as “disappointing.”

Even more reckless was Mark Hurd, who left HP amid a sexual-harrassment scandal but not before shredding "the HP Way," gutting the company of much of its prized talent and burdening it further with his own overpriced deals: $1.2 billion for Palm, a once-promising mobile OS that HP failed to turn into a popular device; and $13.9 billion for EDS, an IT consulting company that was touted as HP's robust push into the services business. Instead, HP took a $8 billion write-off on the EDS deal this summer.

The services business was meant to be HP's big pivot, the growth market that would revive its fortunes. But the division has lost big clients like General Motors and undergone the post-acquisition restructuring in the midst of a global slowdown that has lasted years.

So what's left for HP? Bulls often point to its disarmingly cheap valuation: The stock trades at less than four times its estimated earnings for this year as well as next. The average price-earnings ratio for the S&P 500, meanwhile, is 16. Some people might think that makes HP a super value. But others like Jim Chanos, a noted hedge fund manager, believe HP is in fact a value trap (meaning it may look like a value, when in fact...).

That suggests one last, possible pivot for HP: the reverse-hockey-stick stock chart that trends down over time. Every month, hedge funds are placing bigger and bigger bets that HP's stock will go down, driving up the short interest to worrying levels. As HP's bulls abandon the stock, its bears are getting ready to profit from its decline.

Such a shift in investor sentiment will make a turnaround even harder for HP. If Meg Whitman has a secret weapon in her pocket, she'd better produce it soon.