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Summary

  • The emerging and trending market of cloud computing poses fierce competition amongst peers in the technology sector.
  • HPQ does not appear on Gartner's Magic Quadrant.
  • What is aPaaS?
  • HPQ breaks tailwinds with Helion Technology.
  • Technicals don't quite indicate an entry point.

Cloud Computing

Demand for cloud computing and real-time data integration and analyses is increasing. Importance of appropriate evaluation of KPI's and the relevance of real-time CRUD, is gaining more spotlight. According to Gartner's January 2014 Magic Quadrant, Salesforce (NYSE:CRM) is currently the industries lead:

aPaaS

According to Gartner's report, the quadrant above does an extensive analyses of the following market:

"Application infrastructure (middleware) functionality enriched with cloud characteristics and offered uniformly to all qualified subscribers, as a service, while encapsulating and hiding the underlying system infrastructure, is a platform as a service (PaaS; Gartner refers to it more precisely as cloud application infrastructure services).

A PaaS that is designed to enable runtime deployment, management and maintenance of cloud business application services is an application PaaS (aPaaS).

An aPaaS that is designed to support the enterprise requirements for business applications and application projects is an enterprise aPaaS.

Enterprise aPaaS is a cloud service. Although software facilitates its functionality, the ultimate deliverable is a service, and the vendor evaluations in this research are of service providers (that utilize software "behind the scenes"), rather than software vendors."

(Source: Gartner Inc.)

The Turtle's Financials

I got worried when I did not see Hewlett Packard (NYSE:HPQ) on the quadrant above. The company is very behind on investments in R&D and acquisitions. Please see financials from 10K reports charted below:

Annual Financials for HPQ in USD billion [Aside from EPS - USD]

TTM

2013

2012

2011

2010

2009

Revenue

$112

$112

$120

$127

$126

$115

Gross Profit

$26

$26

$28

$30

$30

$27

Operating Income

$8

$7

($11)

$10

$11

$10

Net Income

$6

$5

($13)

$7

$9

$8

Basic EPS

$2.88

$2.64

($6.41)

$3.38

$3.78

$3.21

EBITDA

$12

$12

($6)

$15

$16

$15

Total Cash

$15

$12

$11

$8

$11

$13

Total Assets (Current + Non-Current)

$104

$106

$109

$130

$125

$115

Total Liabilities (Current + Non-Current)

$76

$78

$86

$91

$84

$74

Net Cash Provided by Operating Activities

$11

$12

$11

$13

$12

$13

Net Cash Used for Investing Activities

($3)

($3)

($3)

($14)

($11)

($4)

Acquisitions, net

($0.02)

($0.17)

($0.05)

($10)

($8)

($0.40)

Debt Issued

$2

$0.28

$5

$12

$3

$7

Debt Repayed

($6)

($6)

($4)

($4)

($1)

($10)

Net Cash Used for Financing Activities

($7)

($8)

($4)

($2)

($3)

($7)

Operating Cash Flow

$11

$12

$11

$13

$12

$13

Capital Expenditure

($4)

($3)

($4)

($5)

($4)

($4)

Free Cash Flow

$8

$8

$7

$8

$8

$10

Since 2009, net income has decreased by $2 billion USD, EPS has gone down by 0.33, and Gross Profit by $1 billion. During this same period, USD spent on acquisitions has decreased by $38 million, operating cash flows by $2 billion, and free cash flow by $2 billion; all while maintaining a neutral 5 year expense on capital expenditure.

Currently most of the company's revenue and operating income are coming from PC's, printers, and other hardware/network infrastructure. Unfortunately, even within this market, companies such as Lenovo (OTCPK:LNVGY) and Cisco (NASDAQ:CSCO) still pose a threat. HPQ is attempting to widen its moat by combating Gartner's forecasted trend of aPaaS through its new Helion technology. Although very behind, this new technology is predicted to help HPQ boost their revenue and be in-line with their peers cloud based innovations. The question of "when?" still remains.

Management Concerns

HPQ has also recently made management changes. The last time they had a management change was in 2010. If one analyzes all the harmful parentheses in the chart above, majority fall around that time-frame. Klaus Kleinfeld will be joining the board of directors as CEO Meg Whitman is appointed chairman of the board. Klaus Kleinfeld was the CEO of Alcoa since 2007. During that time Alcoa has seen a drop in share price of nearly $20/share.

Settlement

Another bear for the corporation pertains to its recently settled law-suit with the singer "Chubby Checker." HPQ utilized his trademark name for an application which allowed individuals to measure male genital size relative to ones shoe size. The suit has been settled with a solution that "benefits both parties."

Technical Analyses and Conclusion

Unless Helion technology expeditiously eventuates some leverage towards the industries trend, HPQ may have some negative headwinds for the next few years.

(Source:Yahoo Finance)

Technicals are indicative of HPQ being in over-bought territory. RSI (14) is around 70, MACD (26, 12) is trending above EMA (9), and %K and %D stochastic are above 80. My advice would be to stay away until technicals demonstrate an entry point and Helion technology allows HPQ to maintain pace with its peers.

Source: Will Hewlett-Packard's Turtle, Helion, Win The Race?