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A Few Reasons Why Hewlett-Packard Looks Like a Weak Investment

July 25, 2014 | About:

Hewlett-Packard (NYSE:HPQ) stepped on the gas last year. Its enhanced performance amid the quarter energized optimism about Hewlett-Packard's late efforts to stage a turnaround. While revenue for the period was in front of analyst expectations at $29.1 billion, HP's adjusted earnings were also superior to Street estimates at $1.01 per share.

Nonetheless, the general scenario continues to stay somber as HP's top and bottom lines fell on a year-over-year basis by 3% and 13%, respectively. Likewise, CEO Meg Whitman rehashed her prior direction of declining revenue for the monetary year finishing 2014. Thus, it is clear that investors have offered up shares under the trust that HP will bounce back, however would they say they are right in supposing so? How about we attempt and discover.

Enterprise spending cues

The essential reason behind HP's not too bad final quarter earnings was a 1.8% increase in revenue from the enterprise division that accounts for about 25% of general sales. Indeed, the results have been a complete turnaround, considering that HP's enterprise division revenue really fell by as much as 9% amid the prior quarter, demonstrating that the organization may still have the capacity to rely on its corporate customers.

Not entirely certain here

A real part of HP's present enterprise division results may be credited to the way that a considerable measure of companies are scrambling to move up to Microsoft's newest version of Windows operating system, even as the last authoritatively ends support for the prior Windows XP in April 2014. Basically, this may be a transitory brilliant spot for HP.

In addition, HP may not see much help from the current 10% uptick in server sales because numerous companies keep on moving systems to the cloud, instead of purchasing expensive on location gear, which is the reason why companies like Amazon.com and Salesforce.com are flourishing in today nature.

Also, declining server and systems administration gear sales to HP's enterprise customers seem to have incited contender Cisco to anticipate a fall in its present quarter's revenue, the first in four years. Cisco continues to hold up under the brunt of a slow pickup in the economy in critical markets such as Europe and China, an actuality which HP's administration has also recognized.

More inconvenience

Separated from enterprises, the inclination among individual customers to move up to the newest version of Windows may also have been the reason why revenue for HP's personal systems division - the particular case that includes Pcs - fell by a less-than-anticipated 2%. With research firm IDC anticipating a proceeded with decline in PC shipments through 2014, the crevice in revenue is required to augment further.

HP also faces the issue of focused valuing by industry contender and individual PC producer, Dell. After the recent LBO, Dell faces a substantial obligation trouble that has provoked it to take after a "down to business" value cutting strategy in a desperate offer to addition more piece of the overall industry, a reality that has resulted in more slender profit margins for HP.

Also, HP seems destined to keep confronting macroeconomic headwinds for a long while, as the worldwide financial recuperation has been much slower than anticipated. The organization can't even fall once more on creating sales in developing markets such as China, whose economy faces an indeterminate future, an actuality substantiated by rivals Cisco and IBM. Despite the fact that HP has, supposedly, taken restorative measures (such as the late arrangement of Robert Mao, a business veteran, as its head of operations for China), just time will tell how things will really shape up there.

What next?

The main things that might be credited to Whitman, so far, are a substantial diminishment of the organization's once-massive heap of obligation and an increase in free cash stream by almost $9 billion this fiscal year. At the same time past that, I'm not extremely sure about HP's turnaround efforts, given that the organization still hasn't had the capacity to focus in on a substantial revenue stream that can offset the downslide in PC-based fortunes.

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