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HP’s Slow Turnaround

Posted on Tuesday, Feb 26th 2013

Gartner’s Q4 worldwide PC shipments report may have painted a picture of dismal performance for PC shipments, which fell 4.9% over the year to 90.3 million units, but for HP, it was still a better quarter than previous ones. After having slipped from the leading vendor position in the third quarter last year, HP regained their lead in the final quarter. During the quarter, HP commanded 16.2% of the global market share, compared with 15.5% both a year and a quarter ago. Lenovo, which had managed to gain a marginal lead in the previous quarter with 15.7% share, slipped to the second largest vendor with 15.5% of the market share. But HP should not be complacent because over the year, their shipment volume dropped 0.5% to 14.6 million, while Lenovo registered a strong 8.2% increase to 13.98 million units.

HP’s Financials

HP’s (NASDAQ:HPQ) Q1 revenues fell 6% over the year and 5% over the quarter to $28.4 billion, ahead of market estimates of $27.9 billion. EPS for the quarter of $0.82 fell 11% over the year, but managed to surpass market expectations of $0.71 and their earlier guidance of $0.68.

By segment, revenues from personal systems fell 8% over the year to $8.2 billion. Commercial revenues fell 4% and consumer revenues declined 13% because of the overall reduction in volumes of PC shipments. Printing revenue fell 5% over the year to $5.9 billion driven by an 11% reduction in hardware units. The Enterprise Group saw revenues fall 4% over the year to $7.0 billion despite 4% growth in networking revenues. Enterprise Services revenues fell 7% to $5.9 billion, and software revenues declined 2% over the year. HP’s Financial Services saw growth of 1% over the year due to an increase in net portfolio assets.

For the current fiscal 2013, HP projected adjusted EPS of $3.40-$3.60, higher than the Street’s estimate of $3.32.

HP’s Computing Offerings

HP continued to add to their product offerings. To capture some of the lost ground in the tablet market, they built on their enterprise tablet offerings. At the Las Vegas Consumer Electronics Show, HP announced plans to make EliteBook Revolve, the first major “convertible design refresh for commercial managed IT,” in more than five years. The Windows 8–based tablet is a convertible touchscreen tablet that pivots to let users share their screens and also folds to become as mobile as a tablet. The HP EliteBook Revolve is focused on the enterprise and government customers as it offers an ultrathin touchscreen tablet that is driven by the third-generation Intel Core processors. The product was named the best notebook at the electronics show in 2013.

During the quarter, they also officially released HP ElitePad 900, an Intel Atom processor–powered enterprise-focused laptop. ElitePad is also based on Windows 8 and comes with options such as an additional Jacket Battery and an office dock. HP did not divulge sales figures, but they claim that the enterprise-focused tablet is seeing strong traction from both existing and new customers. HP is targeting the enterprise tablet market through their Elite series tablets.

Within the personal computing segment, HP introduced their first Google Chrome–based notebook. HP Pavilion Chromebook was released with a starting price of $329. The Intel Celeron–powered Chromebook comes with features such as automatic updates of calendar events, email, status updates, a web camera and an overall easy install feature. The apps and services come with automatic updates so that most software and security is kept up to date without the user having to update them. The Chromebook features the first ever 14-inch diagonal HD display.

HP’s Re-organization

HP’s management believes that they are on track to fix their declining performance with the help of new products, a focus on re-engineering and streamlining operations, and establishing stability within the Autonomy entity. As part of their reorganization, yesterday, HP announced the sale of their WebOS segment to LG for an undisclosed sum. LG bought the segment from HP to incorporate in their smart TVs. The sale does not include the entire WebOS portfolio and HP has retained the use of its patents and the cloud service division. LG will have to license the patents from HP for use. As part of the sale, HP did sell their source code, documentation, websites, and the employee base.

Their stock has recovered from its 52-week year low of $11.35 it had touched in November 2012. It is trading at $19.07, with a market capitalization of $37.24 billion. It touched a 52-week high of $26.61 in February 2012. But analysts are still wary of HP as the management still needs to deliver a lot more to prove that they are truly back in the business. As it stands, it is not at all clear to me where HP is headed.

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