Wake up HP…..Before You Miss the Bus!!
Umang is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hewlett Packard (NYSE: HPQ) one of the corporate giants in the computers and printing group is on the verge of a great fall. This is quite evident as they had one of the worst ever performance in the third quarter of this financial year. The shares are at one of its all-time lows and has plunged 33.5% in the last year.
Overall the performance of the PC sector has been poor because of the stiff competition this sector has been receiving from smartphones and tablets. With the likes of Samsung and Apple (NASDAQ: AAPL) competing in this segment it is getting difficult for HPQ to match up with their fast pace!
Apple with its iPad has taken the personal computer segment into a different level and has captured a major portion of the market. Where HPQ had a dismal show in the second quarter, Apple had an excellent show. There sales increased 44 percent to 17 million in the last quarter, giving the company the biggest share in the market. These figure are awakening calls for its competitors!
If we sit down and analyze their entire report we will see that it is not only their PC segment which has had a dismal show in the last quarter, but overall all segments have been performing miserably. Let us take a closer look on the segment wise breakdown of its third quarter results:
(ESSN - Enterprise Servers Storage and Networking)
Let’s take a deeper analysis as to what are the reasons for the downfall of HP:
- Lack of invention/innovation: Well we can say that HP has not lived up to its tag line-invent. HPQ has filed 1 patent a week on an average last year as compared to 44 filed by International Business Machines (NYSE: IBM) and 88 filed by Samsung. Even if we see the total number of patents filed till date IBM has filed 5866 as compared to a mere 1480 patents filed by HPQ (as of 2010). Thus if patent filing is taken as a sign of innovation power for the company, then HPQ has miles to travel before it is in par with its competitors.
- Lack of competing factor: The last CEO of the company Leo Apotheker made an announcement in the public which led to a huge negative impact on its business. His statement that HPQ is planning to sell off its PC division created havoc in the share market and HPQ’s share price fell by 9% overnight. HPQ is one amongst the top players in the PC business globally. Its major revenue comes from the PC segment, however, the profit margin has taken a huge hit in the past few years. In such a situation instead of taking a hasty decision of separating the PC business from its umbrella brand, HPQ should have worked more on how to improve its operating margin and bring down its overhead costs in this segment.
- Technological Pace: HPQ - the pioneer of the mobile device, is today far behind in this rat race. They are unable to keep up the momentum in the mobility space. HPQ launched its Touchpad in July 2011 – a ray of hope. But as a shock to many, they removed the Touchpad within 45 days itself - reflecting non competence in this arena.
- Fragile / Inconsistent top management: One of the signs that the company is going down the drain is when we see that the top management is fragile or changing regularly. This is quite visible in HPQ where the CEOs have changed many a times with the likes of Carly Fiorina, Mark Hurd, Leo Apotheker and now Meg Whitman.
- Over reliance on webOS: WebOS lacked that appeal to the consumer sector. The operating system lacked enough third-party applications to attract consumers, and its functionality was simply too different from iOS and Android for customers to give it a second look. People felt it was too “techy” to handle. HPQ was quite resilient on relying on webOS which caused the failure of its Touchpad.
- Maligning its own reputation: HPQ is quite famous in the imaging and printing group – one of its major sources of earnings. HPQ was busted a few months back for putting less and less ink into its Printer cartridges. A company with such a reputation in the market is not expected to indulge in such activities. In their attempt to earn pennies they lost the trust factor of many of their precious loyal customers.
- Inappropriate acquisition – When you have money it is important to put it into the right channel if you want to see it growing further. This is simply not applicable with HPQ. This is visible with the acquisition of Autonomy in December 2011. Many of the investors criticized that this could prove an expensive deal for HPQ for it was highly overpriced at $11 billion. They proved to be correct as Autonomy had a major dip in its operating revenue in the previous quarter which opened the exit door for its CEO Mike Lynch in May 2012.
It is high time that HPQ as an organization wakes up before we see its complete downfall. It’s an organization of mammoth size and if it falls it will take down many others with it. Thus we all would love to see it fight and rise back. Well they are coming up with some exciting plans which could possibly help them revive their business. Let’s take a sneak-peek into their future plans:
- New tablet: 18, August 2011 HPQ had removed its recently launched Tablet. Then it had to sell off its existing stock in discounted prices. Looks like they have learnt from their mistake and now they are coming back with the new tablet (with a new look) to challenge the likes of Apple and Samsung. This new tablet is coming with windows 8 and not webOS making it a more attractive deal along with some “unique intellectual property” (details of which are yet to be revealed). These unique IPs could be a game changer for HPQ in the commercial tablet business. The latest in the news is that the CyanogenMod team (a mobile device hackers group) has come up with its latest version CM 9 which enables running of Android 4.0 ICS on HP’s Touchpad hardware; this could be a relief for the existing touchpad customers who are not comfortable with webOS.
- ESSN: In the Enterprise Service and Storage Network (ESSN) though the revenue has gone down the future still looks a bit bright. They are competing with IBM which itself is a giant in this sector. There are announcements of many contracts coming in the way of HPQ which is quite a positive sign.This is one of the lessons from the book of IBM. Last year around October IBM had a tie up with Nirvanix where they expanded their SmartCloud Enterprises. It helped IBM extending their designs to support million of users, billions of object and bytes of data to complement their existing security-rich, virtual server environments in the cloud.
- Ultrabook: HPQ’s Ultrabook has had a good response in the market till now. Though the sales figure have not picked up because of the stiff competition from iPad and smartphones. Yet they are amongst the top share holders in the PC segment because of the Ultrabook. They only need to work on the pricing and the marketing of Ultrabook in order to get its sales rhythm back in the market.
Overall HPQ has had one of the worst shows in this quarter. But still hopes are alive because of the size and diversification of the organization. We all can hope that the company under the leadership of Meg Whitman pulls up its socks and picks up some pace with its competitors.
For HPQ it’s time to say – Now or Never!!
Sources for Printer Cartridge News: http://www.businessinsider.com/hp-busted-for-putting-less-and-less-ink-into-printer-cartridges-2012-5
Umang27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and International Business Machines. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.