Growth in Server Shipments Means More to HP than IBM
IBM (NYSE:IBM) barely edged HP (NYSE:HPQ) in terms of 2010 worldwide server market share, according to data compile by IDC. For the full year 2010, IBM recorded a 31.9% share while HP came in at 31.8%. Other big players in the server market – Dell (NASDAQ:DELL), Oracle (NASDAQ:ORCL) and Fujitsu (PINK:FJTSF) – placed 3rd, 4th and 5th respectively. [1]
Since HP and IBM are now pitching themselves as the leaders of the server market to boost sales, we became interested in comparing what the server business is worth to each firm, and what impact a gain in market share could have on their stock values.
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Servers (including both industry servers and high-end systems) represent more than 10% of our $55.49 price estimate for HP stock. Comparatively, they make up only 3% of our $185 price estimate for IBM stock.
HP Heavily Reliant on Hardware while Software and Services Drive IBM
As illustrated in the chart above, we estimate that the hardware business (including printers, PCs, servers and storage) contributes more than 50% of HP’s equity value. On the other hand, HP services generate about 38% of the company’s value, indicating HP is still primarily a hardware vendor.
Comparatively, IBM (HP’s prime competitor in the server market) derives the bulk of its value from software and services, while hardware (including servers, storage and others) makes up merely 5% of its value.
Potential Upside from a Gain in Server Market Share
See our full analysis and $55.49 price estimate for HP
While HP could see notable stock value upside from a higher server market share, IBM’s upside from a similar gain is marginal at best. This is because hardware constitutes a relatively smaller portion of our price estimate for IBM, making its stock value much less sensitive to changes in server forecasts. We currently forecast that HP’s server shipments will grow at a gradual 2.5% annually, reaching 3.32 million units by the end of our forecast period. However, a faster growth of 10% from an increase in HP’s server market share could result in 6% upside to our $55.49 price estimate for HP’s stock.
Drag the trend line in the interactive chart above to see the impact of various server shipment scenarios on HP’s stock value.
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