Hewlet-Packard: Wait till Q4 to Invest
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hewlett-Packard Co (NYSE: HPQ) had a nice spike when news came out that a report showed the company gained PC market share during the first quarter. Kudos to the company. I have great admiration and respect for Hewlett-Packard, but this jump up was nothing more than a reactionary move to good news, not a long term trend. Make no mistake it has a large arduous journey ahead to get back on top. I see two main facts to hold up investing long term early in the company.
Fact #1 PC and Printer Business is Hard
For a PC and printer company this is hard to bare. The company has gained market share back from a year ago and still brings in $40 billion in PC sales and $4.0 billion in profits from the printer division. But PC sales have dropped nearly six and a half percent since 2008. Even though printers and supplies used to be a high-margin field for the company, people are not using printers like they used to. Increasingly, they are sharing photos and documents online rather than printing. The printing division has seen its revenues drop some 13 percent since 2008.
The company will be in a long transition mode. PC’s as we know them are changing as tablets become more popular and Smartphones share data. The company needs to morph into something more profitable and this will take time.
HPQ is not the only PC Company suffering. Dell Computers (NASDAQ: DELL) also is struggling. PC sales are predicted to fall another 3% for the rest of 2012. Some of this is due to the launching of Ultrabooks by Microsoft and Intel. So consumers will delay buying PC’s. Then Apple’s new iPad will arouse more delays. Dell is not expecting any growth the first or second quarter of the year and nothing at all for all of 2012.
Fact #2 it’s a Long Road to Profitability
I respect and admire Ms. Whitman’s position at the helm. A turn around is never quick and very painful to start. It is really hard to sustain R&D and cut costs at the same time. As investors, we have to realize that Ms. Whitman comes to HP at a time when it is facing long-term declines in the health of its personal-computer and printing businesses. As the PC and printer industry evolves, so will HPQ. But first it will have to deal with cost cutting measures and its product evolution.
This year is going to be a re-inventing year for the company so I am not sure pouring money into the stock is something that is good to do right now. I am a huge HPQ fan, but just not ready for an investment. Instead, take another look in the fourth quarter.
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