Patience Will Pay Off for HP Investors
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hewlett-Packard's (NYSE: HPQ) new CEO Meg Whitman has a lot to say about how the company is going to change, but will it come to pass?
Whitman's basic vision is that HP will soon start making "radically new consumer products" (such as selling cloud computing technologies and transforming its printing and services businesses; however these are things that will have to wait). This is an absolute necessity if the company wants to stay in the game. Lately, the company has been somewhat disappointing in its failure to keep up with the innovations of its competitors. For example, HP has fallen behind in the arena of tablet PCs. This simple vision of Whitman's is a good one, that goes without saying, but we have yet to see if HP can deliver on this vision. Her ideas are great, but she still has to find a way to overcome HP's current situation, which is, to put it bluntly, bad.
Before new areas of business can be entered into, HP will have to do a lot of work. The parts of the business already in existence need to improve before grand turnaround schemes can be focused on. Whitman has denied that HP is in a crisis or that it is on its way toward a cash crunch. This is despite the huge number of job cuts that the company recently announced, a slowdown in its hiring process, and a trend in which it is selling off all of its businesses that are not profitable. According to her, the problem can be alleviated to a large degree simply by getting faster payments from its sales. The strategy may well make a significant difference, but we will have to wait and see what the actual outcomes are. Whitman says she is modeling the company's turnaround on that of Starbucks (SBUX).
At present, HP is not focusing on new consumer products that will make a big hit but is focusing instead on its older offerings, such as corporate sales of laptops and personal computers (when Microsoft's Windows 8 operating system comes out), hoping that they will be enough to make a difference. For now this may be the best strategy. The company has tried in the past to make phones and tablets, but has failed. Although I feel that it is necessary for HP to become involved in these arenas, it should bide its time until it is in a position where it is able to join these markets successfully.
Whitman does have the right idea as well as the right attitude about how to get HP back on track, though. We just can't get too excited too soon. Assuming that she is successful, we still have to prepare for a good few years of struggling before the company is restored to its former glory. HP shares are down. But on the other hand, this is an expected outcome. No one at this point in time thinks that Whitman has the wrong idea, and no one expects HP to turn around at a much quicker rate than the one she is facilitating. This new CEO may be exactly what the company needs, but shareholders and investors will simply have to wait and see what the final products of these endeavors are. Patience is a virtue when it comes to Hewlett-Packard.
HPQ competitor IBM (NYSE: IBM) very recently launched its smarter computing initiative. At the most basic level, this is a type of computing that will make things faster and easier for enterprising businesses and allow them to function more efficiently. As tech stocks go, IBM has always been able to keep ahead of the crowd with very little difficulty. It knows what the public wants and what they will most benefit from and then proceeds to deliver based on that knowledge. This is a stock well worth adding to your portfolio.
Competitor Dell (NASDAQ: DELL) is still focusing on the wrong side of the market in my opinion. Recently, it launched a new range of Inspiron laptops that come with Intel's (INTC) new third Generation Core i processors and the Microsoft (MSFT) Windows 7 Home Premium operating system. As laptops go, these are pretty good, but shouldn't Dell be focusing on the tablet market as its competitors are? If it wants to stay in the game it will have to change its focus and strategy fairly soon. More and more people want to buy tablets over laptops.
Competitor EMC (NYSE: EMC) recently acquired Watch4Net Solutions, a company that provides "enterprise and carrier-class performance management software that provides real-time, historical and projected visibility into network, data center and cloud infrastructure performance." This acquisition, among other things, is what sets EMC aside as a stock that knows what it wants and where it is going. These are the innovations that keep it ahead of the game and ahead of the competition. I predict a rosy future for EMC.
Hewlett-Packard is not going to shock the market anytime soon, that's for sure. Investors just have to bide their time until the company is set to rise and buy low. That time is not soon around the bend though, so the waiting game continues.
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