HP: Is The End Near?
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) has had a disastrous performance for the last two quarters. In the previous quarter they showed a record loss of $8.86 billion. This was attributed to a write off for the Electronic Data System (EDS). This quarter they reported a loss of $6.85 billion. This time they have accused the fraudulent display of data by Autonomy, which they had acquired for a mammoth $11 billion. They are writing off as high as 88% of the purchase price, and there is a case being filed at the SEC and UK fraud office. The company accused former managers of “a willful effort” “to inflate the underlying financial metrics of the company (which is as high as $5 billion) in order to mislead investors and potential buyers."
HP's Personal Systems revenue was down 14% year over year with a 3.5% operating margin, while printing revenue declined 5% year over year with a 17.5% operating margin. Services revenue declined 6% year over year with a 14.2% operating margin. Enterprise Servers, Storage and Networking (ESSN) revenue declined 9% year over year with an 8.3% operating margin. Networking revenue was up 7%. HP Financial Services revenue grew 1% year over year, as a 3% increase in net portfolio assets was offset by an 11% decrease in financing volume. Software revenue grew 14% year over year with a 27.2% operating margin, including the results of Autonomy.
These data represent the fact that it is not just the write off of Autonomy that is a concern for Meg Whitman and her company. Overall, all the business segments are declining. These figures indicate the dire state that the company is going through. HP's stock fell drastically after this announcement and closed at $11.70, which means it's down by almost 60% year-to-date. This can be attributed to an overall decrease in the PC and printer business. Investors are slowly losing their faith in the company, and many are even predicting a write-off.
Is it really the end of HP?
In the PC segment, HP's competitors Apple (NASDAQ: AAPL) and Dell (NASDAQ: DELL) are also not doing so great. Apple fell drastically from its all-time high of $700 and is now currently trading at $560.91. Dell is also down by almost 40% year-to-date. This indicates that the overall PC segment is itself struggling, and companies like HP and Dell that have failed to make inroads to the Smartphone market are the ones to lose out the most.
Meg Whitman is still in the process of cleaning up the mistakes of the previous CEOs. Currently she is the only hope left for HP. She is trying to harness a talented workforce, hit metrics, bring about innovation, and streamline the future. She still believes that HP is not in the state IBM found itself in 1993. She is trying to launch new products in the PC and printer segments in lieu of gaining back market share. The biggest move of all is stepping into the Smartphone market, which is currently the sweet spot for the investors.
If HP can continue its growth in the software industry and focus on gaining the market share in the competitive Smartphone market, then we might just see the tables turning. HP still has the biggest technology company from a revenue stand point. The product line is still very attractive, and the geographical reach is another weapon that they posses in their armory. The only thing that they need is to continue pushing against the odds and latch on to all the opportunities that come their way.
Umang27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Dell. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!