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Hewlett-Packard (NYSE:HPQ) had a good year, and it would have been better if not for the alleged "spying on board members" incident. While the media spent several weeks focusing on this incident, the underlying story was the resurgence of HPQ.

Hewlett’s stock increased over 40% in the past year, giving the company a market cap of over $110B, exceeding that of its rival Dell (NASDAQ:DELL), whose market cap is approximately $57B. HPQ also passed Dell to become the number one PC maker, a title it held briefly in 2002 when Hewlett-Packard bought Compaq, before being passed by Dell the following year. The resurgence began with the April 2005 arrival of Mark Hurd, who replaced Carly Fiorina as CEO. (Fiorina left in early 2005 after the purchase of Compaq led to erratic results and poor stock performance. In hindsight, combining a lower margin maker of PCs with a higher margin maker of printers and the all important ink replacements did not make sense.)

The continuing reorganization implemented by Hurd has improved Hewlett-Packard’s results with both profits and margins increasing from 2005. The company’s fortress-like balance sheet has approximately $16B of cash on hand, $5.2B in debt and an operating cash flow of over $11B. The company’s future looks promising, although intense competition in its markets is a challenge. The company retains a dominant position in printing, and has large market shares in PCs and desktops, servers, and services. Given its financial strength, HPQ could easily grow through acquisition, fund internal growth, or both.

HPQ 1-yr chart

Disclosure: Author has no position in HPQ.

Source: How Hewlett-Packard Got Its Groove Back