When it comes to Hewlett-Packard (NYSE:HPQ) there are two types of sentiments that can be seen. On one hand several analysts and industry experts are getting excited about all the turnaround that is going on under the leadership of Meg Whitman. According to them the computer giant has been increasingly gaining in the previous few months as the company stabilized its business and started venturing into new areas. On the other hand there are several analysts who are unable to understand all the excitement and fuss about HP. To them the company is hardly making any improvement.
Let’s take a quick look at both the sides and then decide whether things are actually improving for the company or not.
The bear case
HP’s recent earnings have brought to light a few points for which many can’t consider that any kind of turnaround is going on in the company. The top-line of the company has plunged in the past two years in a row, and even the projection for the coming year is lower than the current year’s figure.
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- HPQ 15-Year Financial Data
- The intrinsic value of HPQ
- Peter Lynch Chart of HPQ
PC sales, the primary business driver, was also down by 10% in both 2013 and 2012 and though the figure is expected to surge by only 2% in the current fiscal year, the surge is not significant enough o pull HP out of trouble. Next, coming to services and enterprise revenues, both the segments were down in the last fiscal and the overall trend is expected to remain the same going forward.
One analyst also pointed out the Meg Whitman’s $15 billion worth of software-related acquisitions is not paying off accordingly. Such an investment is roughly expected to boost the top-line by at least $1 billion, but in reality the surge in the revenue was just $300 million. Because of all these analysts doubt if at all any turnaround is happening.
The bull case
All the above points are true no doubt. But the fact remains that Meg Whitman is in her second year of the five year turnaround plan and we must give her the time before writing off HP from our books. The turnaround signs need not necessarily be in the historic figure. They can also be hidden in the company’s actions and future plans.
The computer giant is shifting its focus from just manufacturing devices to services such as cloud, big data, security as well as 3D printing which many analysts believe might single handedly support the company’s turnaround. HP also introduced its latest converged system portfolio – a host of interlinked services from HP using its own server, storage and networking capabilities. The components of the offering come together to provide a 360 degree solution to make information technology requirements even simpler.
HP is also paying adequate attention to the growing needs of the consumer electronics space. Its two latest gadgets – Slate 6 and Slate 7 tablets - have already created some ripples in the highly crowded tablet space. In days to come the company intends to concentrate on expanding its product portfolio, reducing costs and maintaining healthy margins.
Despite discouraging numbers in the recent past, HP seems to have a lot of upside potential. Taking into account all that’s going on in the company and Meg Whitman’s determined and well planned moves, it can be said that the turnaround is surely in the making. The company still has three years in its hands to improve its performance and prove the critics wrong. Huge growths are expected across verticals with special focus being on 3D printing. To drive home the discussion, I feel HP has a strong chance to become the top-dog.