Hewlett-Packard (HPQ) went through a difficult period as the financial results projected an ugly picture of the company's performance. The huge losses declared in 2012 and the slowdown in the personal computers market was only the beginning. The horror story for HP included a declining market share coupled with allegations regarding accounting claims.
In order to tackle the issues, HP has introduced restructuring plans to reduce costs. Also, the company has recently shown its aim to redirect its strategy, laying more emphasis on innovation. HP was able to beat analyst estimates in the first quarter of 2013 but there is still a lot of ground left to cover. The changes in the top management along with the efforts to recover the performance of the company have resulted in a 38.2% improvement in the share price since the beginning of the year.
First Quarter Results
In the first quarter of 2013, sales for personal computers demonstrated a decline of 8%. Desktop sales showed a slight improvement while sales of notebooks decreased by 14%. Similarly, printing revenue also showed a decline of 5% compared with the first quarter of the last year. The operating margins of this segment remained strong at 16.1%. Sales in other smaller segments also witnessed a fall. Overall, earnings of $0.82 per share were reported, which beat analysts' estimates of approximately $0.71 per share. HP forecasts its earnings at approximately $3.5 per share for 2013. Despite the fall in revenues, these results are being viewed as some light at the end of the tunnel as Meg Whitman continues her efforts to shake off the issues behind the sluggish performance of the company in the past.
Is HP Likely to Make a Turnaround?
HP has shown less-than-impressive performance because the company failed to cope with the competition put forth by tech giants like Apple (AAPL) and Samsung (GM:SSNLF). As the global interest rededicated rather strongly in favor of mobile devices, HP failed to keep up with the pace. The small attempts that were made including introduction of a low-priced tablet called 'HP Slate' never posed a considerable threat to the big players. Along with the fact that mobile devices are taking over the personal computers market, HP is also slipping its market share to other competitors like Lenovo (OTC:LNVGY).
Irrespective of how grim the situation appears, the likelihood of a successful turnaround is present. This is because the management of the company seems to have identified the problem. HP introduced a restructuring plan in 2012 in which the company aimed to cut approximately 29,000 jobs, in order to fuel prospects for other investments. These funds will be aimed at ventures focused toward the newer technology as compared to the previous business segments of HP. In order to bring these plans to light, HP is planning to pursue a new line of servers. This new line of technology products includes HP Moonshot, a powerful energy efficient system designed to develop a position for HP in the growing data center business. In this segment, the company will be competing against major players like Amazon (AMZN), Microsoft (MSFT) and Google (GOOG).
This is essentially one of the strongest indicators in favor of the company's future as it shows that the company is adapting to the changing trends of the industry. It's time for HP to realize that the evolution of market in favor of mobile devices is likely to take over the personal computer industry completely. Critics have suggested time and again that HP needs to come out of its previous achievements and look at the real picture.
It is safe to suggest that the worst days for HP have passed. The shakeup in the upper management has been settled and the new direction for the future has been decided. However, it is important to note that investors should account for the high level of uncertainty associated with HP before investing in the company. The growing market for data center businesses is likely to assist the recovery for HP but the company will be competing against some of the largest tech giants. In the process of recreating corporate strategy, HP might have to shift its focus from its two strongest segments i.e. Personal computers and Printing.