HP’s 5 Drivers To Stronger Sales Post Restructuring

by Trefis Team
-29.67%
Downside
35.60
Market
25.04
Trefis
HPQ
HP
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Hewlett-Packard (NYSE:HPQ) announced Q2 2012 results on May 23. It reported net revenue of $30.7 billion, down 3 percent y-o-y with net earnings falling 21 percent to $1.6 billion. It also announced a multi-year restructuring effort to make the organization simpler and more efficient. This would involve cutting its current 324,000 member workforce by about 27,000 by the end of 2014. [1]
See our full analysis on HP

As part of the restructuring, HP expects that approximately 27,000 employees will exit the company and is also offering early retirement programs. The restructuring is expected to save about $3 billion to $3.5 billion by the end of year 2014, which will be reinvested into the company.

Business Group Results And Outlook

Below we highlight five drivers we think will support sales growth in Q3 and Q4 and could help turn around the stock’s slide.

1) Ultrabooks

The Envy Ultrabook and Sleekbook line of HP is likely to drive notebook sales in its PC division in 2012. Currently this division constitutes 15 percent of the current Trefis price estimate of HP. With HP regaining its top spot as the largest PC seller in the world, we expect the PC division to do well in the coming quarters, especially since rivals such as Dell lose market share.

2) Windows 8 Tablets

HP has announced that it will resume production of tablets running Microsoft Windows 8 OS aimed for institutional use. This is its second foray into the tablet market as the TouchPad based on the WebOS was suspended last year due to poor performance. This move will help HP gain market share in tablets without directly competing with Apple’s iPad, which is more consumer centric. [2]

3) Merging printing and PC businesses

It also plans to merge its printing and PC computer businesses. The merger is aimed at improving its business efficiency by reducing costs, streamlining sales and marketing. This could potentially bring about a significant amount of cost savings. The focus seems to be on printing as it searches for a location to build a $100 million printer factory in Asia.

4) Managed Printing Services

We expect HP to focus more on managed printing services, going forward, as hardware sales decline and margins fall. It has also made moves to tap into the printing needs of homes and small businesses by entering into an agreement with UPS to provide print solutions on-the-go from any UPS store across the United Sates.

5) Cloud Services

The HP Cloud entered public beta in May. This is based on OpenStack technology and is a direct competitor to Amazon Web Services and is currently available to a limited number of customers. Some of the services are HP Cloud Compute, HP Cloud Object Storage and HP Cloud CDN. This will have a pay-as-you-go pricing and is potentially the largest growth market for HP. [3]

We currently have a $31.60 Trefis price estimate for HP, which is much higher than the current market price.

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Notes:
  1. HP SEC Filing, www.sec.gov, May 23, 2012 []
  2. HP restarts tablet manufacturing, Bangkokpost.com, May 11, 2012  []
  3. HP Puts OpenStack Cloud Into Public Beta, gigaom.com, May 10, 2012 []
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