Can HP Bounce Back?
Yasir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The PC market was one of the biggest tech industries in the world. However, the PC era is slowly fading away, while the market for tablets and smartphones is growing quite fast. Hewlett-Packard (NYSE: HPQ) is one of the leaders in the PC market along with Dell (NASDAQ: DELL) and Lenovo. While Dell has decided to go private, HP continues to surpass expectations in the stock market.
After a continuous decline in 2012, HP looks set to bounce back and is already trading between $18 to $22, which showed almost a 50% increase from November last year. Even though HP's 2013 Q1 net income of $1.2 billion is almost 15% lower than Q1 2012, it exceeded Wall Street expectations. Revenue fell to $28.4 billion compared to estimates of $27.9 billion. The company recently announced that it will go ex-dividend from March 11 and a $0.132 dividend will be paid in April to those who have purchased the company's share prior to March 11. Meg Whitman, HP's CEO, recently stated that the company will see a revenue growth in 2014. She said that the new restructuring strategy will pay off in 2014, which means that the company won't see any revenue acceleration in 2013.
There is still a long way to go before HP can get on top; however, the company looks like it's on the right track. Unlike Dell, HP still has innovation and 2013 will be a key year to analyse the company's future growth. Here is a SWOT analysis of HP, which will give investors a better picture of the company.
One of the biggest strengths of the company is its brand name. HP is still one of the biggest names in not just the PC market, but in the tech and electronics industry. Even though the PC market is slowly fading away, HP is still the largest PC manufacturer and enjoys benefits such as economies of scale. Dell has been another leading name in the PC market and has been HP's biggest competitor since decades, however, after lack of product innovation and a constant decline in profits and market share, HP now has a better brand image.
Apart from the hardware side, HP is also targeting revenue growth from its software and services divisions. Even though the hardware sales contribute to most of the company's revenue, the company's strength in customer experience management (CEM) and software will help it to rely less on the declining PC and printers market. The company's Cloud system service is also rising, with some of the major telecom companies using HP's cloud system offering.
One of the biggest weaknesses to HP is the declining PC market and the poor sales of Windows 8 touchscreen devices. Even though Microsoft claims that sales of Windows 8 licenses were better than expected, the new Windows 8 devices have not performed well in the market. This external weakness doesn't only cause problems for HP, but Dell and Lenovo have also had some problems with the Windows 8 devices. Reports suggest that consumers should expect price cuts on Windows 8 touchscreen laptops and convertibles as Microsoft plans to lower licensing fees for PC manufacturers.
Another major weakness is that HP failed to capitalize on the Android platform. HP's Palm acquisition was probably the company's worst nightmare. HP entered into the tablets market with its webOS based touchpad while Lenovo and Asus released Android devices. After the failure of its webOS smartphone and tablet, the company has decided to sell its webOS platform to electronics giant LG. At the recent Mobile World Congress event, HP unveiled its new Android tablet; however, this may be too little too late. Both, Lenovo and Asus, released some fantastic Android devices when they entered into the tablets market, which is the reason why both the companies have a better brand name in tablets compared to HP.
Expanding further into Android is probably the company's biggest opportunity. If HP's latest Android offering, the Slate 7, becomes successful, then the company should definitely invest in releasing an Android product line. Whitman recently stated that HP will focus more on tablets in 2013 and the Android platform is possibly the best option to do so. Dell, on the other hand, now relies completely on the Windows OS after the failure of its Android based Streak tablets.
Entering into the smartphones market, once again, is also another opportunity for the company. Whitman believes that HP needs to invest in the smartphones business and needs to have an array of devices, although, the company won't be releasing any new smartphones until 2014.
The Windows 8 market could be another opportunity for the company. While the PC market continues to decline, Windows 8 convertibles and hybrid devices look quite promising. They, basically, provide something in between a tablet and a laptop. The concept is really interesting and a lot of people have been impressed by the new Windows 8 convertibles. HP has already released a Windows 8 hybrid, the Envy x2 and if the market, for these hybrid devices, the company can release a few more of these innovative hybrid PCs.
Looking into the PC market, HP's 2 biggest competitors are Lenovo and Dell. Dell has lacked product innovation for years and the company continues to decline in the PC market. Lenovo, on the other hand, finally beat HP in terms of global PC shipments. HP's biggest threat comes from Lenovo as the Chinese manufacturer uses lower prices to its advantage. Lenovo, previously, was known for its cheap low-end PCs, however, the company now looks promising in the high-end PCs as well, after the release of its Yoga 13 convertible ultrabook. ASUS and Acer are other competitors in the PC market with their own line of Windows 8 devices.
In the PC plus Tablets market, HP faces competition from all the major Android tablet manufacturers, including Samsung. Analysts believe that tablets are the future of PCs and Android, as a whole, is a major threat to HP. HP's latest Android slate features low-end specs, which is why it is prices significantly lower compared to Samsung's Galaxy Tab and Nexus 10. Other manufacturers such as ASUS already have a decent market share in the tablets segment and HP's late entry poses a major threat to the company.
HP has been facing hard times in 2012, mainly because of the decline in PC market. However HP is definitely on the right track as the stock continues to jump in 2013 while the company undergoes a restructuring process with new management. Meg Whitman has big plans for the company in the future and expects a massive revenue growth from 2014. While the Personal Computer fades away, 2013 will be a vital year to analyze HP's situation going forward.
Yasir Idrees has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!