3 Terrific Reasons Why You Should Buy This Turnaround

| About: HP Inc. (HPQ)


After a terrific run in 2013, Hewlett-Packard is gearing up for 2014.

The company’s product-focused moves in the IT and cloud industry should drive growth.

New product offerings in the hardware and enterprise market should benefit Hewlett-Packard in the long run.

Hewlett-Packard’s foray into the 3D printing market can prove to be fruitful, as the company has enough cash to challenge the market leaders.

PC giant Hewlett-Packard (NYSE:HPQ) has been steadily gaining in the past few months. Shares are up more than 40% in the last one year, as HP has managed to stabilize its business and is exploring newer areas to grow its business. For example, HP has trained its sights on the emerging 3D printing arena, where the likes of 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) ply their trade. In addition, HP is also working on developing its business in other areas. Let's take a close look at what HP is up to and whether it is still a good investment.

It has been two years since HP started its work of repositioning the company to meet the challenges of technological change, evolving business models, and customers' changing needs. This is a competitive advantage for the company, placing it in a position to seize opportunities that would arise in the market going forward.

Product-focused moves

HP is focused on introducing significant new innovations to build upon its offerings in cloud, security, big data, and converged infrastructure, as well as some remarkable new technologies in printing and personal systems. It is rolling out updates to partner programs, and this should further strengthen its channel relationships, while also optimizing its cost base.

HP recently introduced its new converged system portfolio, a family of integrated IT systems using HP server, storage, and networking technology that is purpose-built for key workloads such as virtualization, big data, and hosted desktops. These new products deliver a total systems experience to simplify IT, enabling clients to go from order to operations in as little as 20 days.

The introduction of StoreOnce Backup, StoreAll Archive, and StoreServ Storage innovations collectively deliver industry-leading performance and efficiency, making it possible for enterprises to manage their data in the new style of IT. HP has also announced the next generation of its flagship private cloud solution -- CloudSystem 8 -- that integrates with OpenStack architecture and enables enterprises to build a private cloud and deploy cloud services in a matter of hours, rather than days or weeks.

HP was recently recognized by Forrester Research as the clear leader in private cloud solutions. It also launched its new hybrid cloud management platform, a self-service portal with key management and security tools that allow IT managers to more efficiently deliver applications and services to their users.

Market-focused moves

HP is also targeting certain opportunities with its cost-effective products that play to its strength. This is demonstrated by the introduction of two new mobile devices in India, the HP Slate 6 and Slate 7 VoiceTab, as the company is looking to make the most of the booming low-cost tablet market in the country.

HP believes that its approach of being selective about where it plays, coupled with good cost discipline will ensure it remains focused on profitable growth.

HP also delivered its third successive quarter of hardware unit placement growth, driven by very strong growth in laser units. HP outperformed the market, gaining two points of market share over the prior year in both ink and laser.

In the first quarter, HP also witnessed encouraging growth in bookings in Strategic Enterprise Services. However, management believes that there is an opportunity for it to improve its success in winning new large customers and securing add-on revenue from existing accounts by employing a more proactive sales approach. Looking forward, HP is focused on improving its product mix, cost-savings opportunities, and improving attach rates to drive increased operating margins.

Customer interest in HP's products remains high and HP is working with a number of customers on proof-of-concepts, addressing a variety of different workloads. In converged storage, it saw 42% revenue growth, while revenue grew 4% in networking. There's a strong adoption of HP's new portfolio, including Proactive Care, where orders grew triple-digits year-over-year. In Autonomy, the technology continues to resonate very well with customers, as HP launched Idol 10 and Data Protector 8.1, the industry's first adaptive and self-aware backup and recovery solution.

A big opportunity

Hewlett-Packard is also planning to enter the fast-growing 3D printing market, which could supplement its turnaround. According to Wohlers Associates, one of the leading firms studying 3D printing, the 3D printing market will be worth nearly $11 billion by the end of 2021. This has opened up a huge opportunity for Hewlett-Packard, as it has enough resources to compete against the other players of the 3D printing industry, like 3D Systems and Stratasys.

Both 3D Systems and Stratasys have been making shrewd moves to make the most of the 3D printing market. The companies have increased their R&D expenditure and have acquired many small companies. In fact, 3D Systems had to bring down its earnings guidance for FY2014 as it doubled spending on R&D. In addition, the company is in an acquisition frenzy, buying nearly 45 small companies in a little over two years. However, the 3D printing industry is still in its nascent stage of development, and both 3D Systems and Stratasys will take time to integrate these M&A into their core businesses.

This will give Hewlett-Packard enough time to grab market share from these companies. Also, 11 main industry patents are set to expire in 2014. This will open the gates for entry of new rivals, the biggest of which is Hewlett-Packard. Last year, Meg Whitman, Hewlett-Packard's CEO, told the Canalys Channels Forum in Bangkok that the company will enter this market in 2014 and will work on reducing the costs of 3D printers, which are presently very expensive.

This should give Hewlett-Packard a huge competitive advantage over 3D Systems and Stratasys, as high costs are currently restricting 3D printing's growth. Hewlett-Packard has never shied away from spending on R&D. The company has more cash than all other 3D printing companies combined, and will continue to spend in order to increase its market share.


Hewlett-Packard seems to have a lot of room for growth going forward. What's more impressive is the fact that HP is darn cheap at under 11 times earnings. With growth expected in different areas of the business, including exciting ones such as 3D printing, HP seems like a winning bet for the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.