HP's Newest Threat Won't Rattle Stock
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It is no secret that Hewlett-Packard (NYSE: HPQ), the world's leading PC maker, has been seeing more headwinds and less growth opportunities over the past several months. Just recently, the Chicago Tribune reported that HP's $600 million per year IT service deal with General Motors (NYSE: GM) is now at risk. According to the article, "the loss of a significant amount of that business would be a big deal."
To add to this pressure, there's another company on a roll, threatening to challenge HP's dominance. Lenovo, China' s largest PC maker and the second largest PC maker in the world today, recently announced it will be tapping into the smartphone and tablet market with an $800 million investment-an area that HP is not a part of. The company will be building a new facility in Wuhan, specifically for cell phone and tablet computer research & development. The facility is expected to be completed sometime in October 2013 and is anticipated to make more than $1.6 billion revenue a year, with plenty of room to expand and increase and hopes to make five times that figure within 5 years. Securing its place as the number two PC manufacturer in the world-behind only Hewlett-Packard-Lenovo managed to further the lead against biggest rival, Dell (NASDAQ: DELL), that chose to focus on higher-profit machines like XPS PCs, a move which resulted in a swift 2.1% decline for the American manufacturer.
The fact that it would soon lead the race against Hewlett-Packard was almost a given with the jumps it has been making-from fourth largest PC manufacturer in the world in 2011 to second in 2012. But HP has not been making it easy, nor does it plan to let go at all. Investors who were betting their money on when it would happen and not if may have to rethink their position.
Although HP earned an impressive $7 billion on sales of $127 for its most recent fiscal year, it has still been rather flat the last three years due to revenue leveling off in the past few years and its leadership in turmoil. Furthermore, while it comfortably holds the title as the world's largest computer maker, the PC business is still at a risk of due to increasing pressure from smartphones and tablets-a market that HP has not as of yet been able to profit from. HP's competitors, however, such as Apple (NASDAQ: AAPL) and Intel (INTC) have been immensely successful in all telecom technology, from smartphones to tablets to computers.
Investors wanted to see something new. The company wanted HP to be diversified and have many areas through which it can become profitable and the company was quick to respond to that demand. If HP can give investors and shareholders what they are looking for by the end of the year then there's no stopping this PC giant. It will be fascinating to see what it can achieve. However, if the company fails to deliver, there's no telling what the outcome of the company will be in 2013. Yet, analysts are predicting worldwide PC sales to growapproximately 10% in 2013, so there's a lot of money still to be made in this market, even without expansions into other markets.
Hewlett-Packard shipped 15.7 million units in the first quarter of the year and had 18% of the market while Lenovo captured 13.4% of the market while. Dell shipped 10.1 million, capturing 11.6% of the market. Despite some serious competition, HP is still profiting, even if it is not moving as quickly as it should, (and furthering the gap between it and Lenovo and Dell).
According to IDC, Lenovo saw an impressive 44% increase in shipments in the first quarter of 2012, making it the fastest growing PC manufacturer among the top five global players at the moment and is expected to grow another 6% in the second quarter to reach revenue of $7.4 billion, according to Barclays. Analyst Kirk Yang of Barclays Capital in Hong Kong predicted stronger growth in the second quarter as Lenovo expands its operations and is expected to push its sales in the EMEA region with new product offerings, like smartphones, tablet computers and smart TVs, competing with new players including Apple and Google's (NASDAQ: GOOG) Android. Apple and Google have a huge head start in this market, so it will be interesting to see if Hewlett-Packard will be left in the dust.
Hewlett-Packard also revealed extremely optimistic PC industry market results and was up 6.6% according to the first-quarter results reported by IDC and Garner, that's a 3% increase from last year's figures. The PC giant reportedly shipped over 15 million PCs in its first quarter, securing its place as the number 1 PC manufacturer in the world by total number of units shipped. For a company that controls 18% (16.9% the same time last year) of the total PC market according to IDC, Hewlett-Packard is definitely in part responsible for the global increase in PC shipments which also increased 2.3% since this time last year-and managed to exceed IDC's predictions.
There's no denying that Lenovo is a major competitor and has taken Dell's place as HP's biggest threat. Yet for now, it seems like the two companies can make a profit simultaneously, without affecting each other-mainly because they are targeting different markets (Lenovo relies heavily on China and South America, while HP relies on India, the MENA region and America). Anyone who may have been at one point slightly hesitant about investing in HP or Lenovo can rest assured that both companies have what it takes to succeed-and its future success is only anticipated to grow at an even faster rate.
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