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Hewlett-Packard: PC Market Weakness Isn't a Concern for This Tech Player

June 12, 2014 | About:
jaggom

jaggom

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Technology giant Hewlett-Packard (HPQ) has demonstrated an impressive performance so far this year. The stock jumped impressively by 16% year to date as investors were positive by the turnaround of the PC giant. The focus on the cloud and 3D printing by Hewlett-Packard has helped the company strengthen its business and stop the revenue decline to some extent in a weak PC sales environment.

The Way Forward

The PC market weakness had badly affected HP. There were declining computer sales owing to the gaining momentum for mobile devices such as smartphones and tablets. However, HP should be able to witness an increase in computer sales going forward due to an increase in demand from businesses after Microsoft (MSFT) stopped supporting Windows XP in April. This has forced business consumers to upgrade to the latest Windows software and buy new machines for employees.

HP is focusing on product innovation to add more value to its products. HP has launched its new converged system portfolio, which is a group of integrated IT systems that use HP server, storage and networking technology built for key workloads such as virtualizations, big data and hosted desktops. These solutions are designed to deliver a total systems experience to simplify information technology and enable clients to go from order to operations in just 20 days.

Going forward, the company should see an increase in revenue as it is looking to reduce the time-to-market for its clients in the enterprise space, and it is focusing on the cloud. According to TheInfoPro, a division of analyst firm 451 Research, exceptional growth is expected in enterprise cloud computing projects going forward. The findings of InfoPro were reported in ComputerWeekly, stating that approximately 60% of IT decision-makers view cloud computing as a natural evolution of IT service delivery and do not allocate separate budgets for cloud computing projects.

About 69% of those respondents who have separate budgets for cloud computing expected their spending to increase in 2013 and 2014 compared with 2012.

Approximately 35% of the respondents cited that the internal or private cloud projects still dominated cloud-related activity. The public cloud services such as infrastructure as a service (IaaS) and software as a service (SaaS) activity in enterprises also doubled in the range of 30% and 33% in just the past six months.

Therefore, the enterprise cloud market is expected to benefit HP hugely on the back of its key solutions such as a converged system portfolio. In fact, HP is already seeing an increase in the enterprise services business as illustrated by its recent contract win at the Colorado Department of Health Care Policy and Financing. HP has grabbed a $116.9 million contract to implement a new Medicaid management system within a period of five years. This could be counted as one of the many wins that are seen coming for HP as its services gain momentum.

Strategies

The new products of HP are also doing well. It recently launched its HP Officejet Pro inkjet printers for small and medium businesses. HP witnessed double-digit sequential growth in sales of the Officejet Pro for the first quarter which seems obvious considering the printer's features. HP is targeting the reduction of complexities and data loss with this printer coupled with saving up to 50% on ink, thereby exciting the users and providing them with high-quality prints. Hence, HP can get a bigger share of enterprise businesses with product innovations like this.

Further, it seems that HP's Autonomy business is also contributing to the growth of the business. Autonomy recently released solutions known as Idol 10 and Data Protector 8.1. These are the first of their kind adaptive and self-aware backup and recovery solutions in the enterprise space. These solutions have gained healthy traction as China Mobile (CHL) selected Autonomy's Idol to power the search capability of its strategic wireless city platform. This move enables China Mobile to provide users with access to information on several public services, directly from their mobile devices.

Finally, there's huge potential of the 3D printing market that HP eyes.

The global sales of 3D printers and associated software and services are expected grow at a robust pace by 2021 as per the management. The industry is believed to be worth $11 billion by 2021, an increase from just $2.2 billion two years ago. Moreover, according to Reuters, HP CEO Meg Whitman believes that "HP's in-house researchers have resolved limitations involved with the quality of substrates used in the process, which affects the durability of finished products."

So, HP seems to be well-positioned to tap the 3D printing opportunity.

Conclusion

Despite robust growth for this year, HP still looks cheap at a trailing P/E of less than 12. Also, a forward P/E of 8.45 reflects that the company operations are in good health and excellent growth in earnings can be expected going forward. Hence, HP should continue rising after reporting its second-quarter results considering the improvements that are expected in its business.


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