Hewlett-Packard: Expect Solid Gains This Year

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In my previous article, I discussed how Hewlett-Packard (NYSE: HPQ) went from a powerhouse to an amused byword in the tech world. To be sure, HP was counted down – but not out.

Enter Meg Whitman. A U.S. Business Hall of Fame inductee, Whitman has already done a great deal to revive the fallen giant. Through steady-handed leadership and a renewed focus, I predict we will see a rise in HP stock with Whitman at the helm.

Whitman’s Way

Hewlett Packard has been the lead provider of software and computer workstations in small to medium-sized businesses, as well as to the government and education sectors. Last September, it appointed Meg Whitman CEO, and under her leadership, the stock has risen almost 40%. Whitman’s solid and effective strategy of ‘sailing with your strengths’, focused the company on doing what it does best: printing and PC’s. Even in the midst of transition, HP still reported a moderate Q4 2011 operating profit of $9.7 billion.

How did Whitman show these kind of results? What are the specific evidences of how she got HP back on track?

First, instead of trying to be more like IBM (NYSE: IBM), the foolhardy path led by former CEO Leo Apotheker, Whitman has reorganized the HP model to look more like Dell (NASDAQ: DELL). It will focus more of its energy on sales to businesses, which tend to be more lucrative because they are less expensive to make. Whitman has also shifted focus to the higher-margin cloud computing arena. This will be beneficial to HP since, though it still leads Dell in PC manufacturing, revenue from the PC market has not met expectations.

Second, she has streamlined operational management and clarity. The personal computer and printing groups have been consolidated and the company’s corporate sales will be managed directly by the HP group that makes computer servers and storage for businesses and which manages large data centers. Marketing and communications functions, once shared between headquarters and many other divisions, will now be centrally managed.

Third, it has stepped up its innovation. Last Month, HP unveiled its new 27 inch All-in-One tower-less workstation: the HP Z1. With assistance from new partner NVIDIA (NASDAQ: NVDA) which supplies the Quadro graphics card, boasting support for more than 1 billion colors, this system will set the new standard for power and convenience in personal computers.

HP rigorously tested all of the leading industry applications to ensure compatibility and high performance. This innovative machine comes with an easy snap-and-swap installation, making upgrades more efficient. Organizations will save millions by not needing specialized support help and individual PC-ers will enjoy the convenience of do-it-yourself upgrades.

Finally, HP is no longer ‘going it alone’. The lone wolf mentality under Apotheker led to its isolation from several key partners which could have helped the success of some of its earlier product line. Now, along with Nvidia, it has negotiated a services deal with travel technology solutions provider Sabre Holdings to the tune of $800 million over six years.

Sabre has its fingers in several pies including corporations, airlines, hotels, rent-a-car companies, and even some cruise and tour companies. This is a huge win for HP in their revamp as it will now put them in a better position to compete with other software providers such as IBM.

The most recent partnership is with retailer Lenovo (NASDAQOTH: LNVGY.PK). Prompted by Apple’s success with its brick and mortar stores, both HP and Lenovo are aggressively aiming to build up their own brand stores in Taiwan and other parts of Asia.

Lenovo currently has about five brand stores in Taiwan and is reportedly considering to greatly increase the number of its brand stores in the Asia region to 1,000. Meanwhile, HP is also establishing a full-service center in Taipei, combining product maintenance service with product exhibition in one location. Increasing brand image and product recognition will increase revenue, especially in an exploding market such as east Asia.

What Will Happen and Why

These strategic moves made by Whitman will all but solidify HP’s place of prominence in the market this year. Now trading at around $23.50 per share, I predict HP will see some steady growth in the next few quarters.  

Leadership is key when it comes to a company’s strategy. HP’s Leo Apotheker debacle, which resulted in the  unsuccessful transformation of HP into "the new HP", was a hard blow to the technology titan. However, Whitman’s appointment and subsequent performance has shown that she has established a firm grasp on the company and understands its weaknesses. More importantly, she has wisely taken the course of several successful CEO’s and focused on ‘keeping the main thing the main thing’.

Whitman took an unconventional approach when she stepped in as CEO. Several less brave would attempt to get the ‘lay of the land’ before the dramatic changes she has implemented. Yet, not letting her company rest on any past success (or more accurately; failures), she has challenged the company not only to create new plans to achieve new goals, but also seeks out new opportunities and partnerships that will solidify its position in the market.

Additionally, one cannot underestimate the potential for HP’s innovative tower-less device. Competitive businesses always seek the most cost efficient and quality equipment available. They will be attracted to the HP brand's reliability as well as the NVidia quality, and every CFO will have his/her eyes locked on the ability to upgrade without purchasing an entirely new machine. I see the HP Z1 being a huge success for the company.


And so it comes full circle. HP sank only to rise stronger and better equipped to remain a formidable presence in the technology market. I think great returns are on the horizon and I would buy ahead of earnings. HP is taking a new strategic direction - one that I think makes perfect sense. 

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