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Is Hewlett-Packard Poised for Further Growth?
Posted by: ICRAOnline (IP Logged)
Date: March 12, 2014 10:39AM

Technology giant Hewlett-Packard (HPQ) recently ended its first quarter with flying colors. Despite the PC industry downturn, one of the driving forces was the Personal Systems Group segment. This is encouraging amid news that the PC market will not recover even in 2014, since PC sales are the biggest contributor to HP’s revenues.

Even if the company fails to buck the market trend of declining PC sales in future quarters, there are other factors that may propel growth for HP and its investors. Here are the three things that can take the company forward.

Low-Cost Tablet

HP is constantly on its toes to fight the PC market disaster. Very recently, the company introduced a low-budget tablet, HP8. The 8-inch Android tablet priced at $169.99 will have a memory of 1 GB, storage space of 16 GB, a microSD card for external storage, two mega pixel camera and long-hour battery pack. The features might not be as attractive as Apple (AAPL)'s iPad, but the tablet certainly meets computing needs at a pocket-worthy price.

Looking at the growing demand for tablets, and keeping in mind the breadth of market leaders like Apple and Samsung, it is probably the best policy for HP to catch hold of a low-end tablet market first. Obviously, HP has to compete with similar offerings from Dell, ASUS, Amazon (AMZN) and Google (GOOG).

Dell’s Venue 8 tablet costs $179.99, while the Pro version of Venue costs even higher — $329. Amazon’s 8.9 inch HDX Kindle Fire is priced at $339. This shows that even if the features are not great, pricing could be an advantage for HP8.

Focus on SDN

HP is now collaborating with NEC Corp., one of the early movers and key players in the software defined networking (SDN) marketplace. The duo will develop SDN-enabled networking solutions targeting enterprise customers.

HP is penetrating deeper into the SDN space, which is at its nascent stage, but promises enormous growth prospects. U.S. research firm Infonetics Research sees SDN generating $3.1 billion revenue by 2017. Researches from TechNavio predict that the SDN market could grow at a five-year CAGR of 62.3% by 2018, driven by the growing demand for cloud computing.

Association with NEC will give HP a competitive edge over key players Juniper (JNPR) and Cisco (CSCO) and allow it to grab a larger share of the growing market.

Government Contracts

In the past few weeks, HP won contracts from the U.S. Navy, U.S. Department of Defense and U.S. Department of Homeland Security.

The U.S. Navy selected HP to replace its old fleet of gadgets with the latest range of PCs, tablets, displays and notebooks. The Navy will deploy the products across its domestic and international bases. The order, which will run for two years (plus two optional years), is valued at $40 million.

The U.S. Department of Defense will utilize HP’s maintenance and support services for the entire eco-system of hardware and software solutions that are used daily. The five-year contract is worth $548 million.

The U.S. Department of Homeland Security will use HP’s software security solutions across its 33 agencies to address growing cyber threats. The $32.4 million deal will run for five years.

Winning federal contracts is not easy as it requires compliance of many provisions and regulations. However, HP’s years of technological expertise have made it one of the favorite vendors with the U.S. government. The recurring deals have secured HP’s revenue streams earlier and are expected to remain a catalyst in the coming quarters, too.

To Conclude

HP’s relentless efforts in gaining traction in the tablet market look commendable, but the PC giant still has to traverse a long road to match its peers’ footprints. Nevertheless, HP’s growing exposure to the extremely potential SDN space and support from recurring government deals are expected to strengthen its fundamentals going forward.

Stocks Discussed: HPQ, AAPL, AMZN, GOOG, JNPR, CSCO,
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