Winners In The HP Collapse

Aug.22.11 | About: HP Inc. (HPQ)

After a disastrous conference call with analysts, HP (NYSE:HPQ) CEO Leo Apotheker is looking like an embattled Arab dictator, and the stock is trading at a lower PE than Ford (NYSE:F).

HP has been in trouble for many years, ever since Carly Fiorina decided that the tech industry was consolidating and it was a good idea to buy Compaq and its collection of dead technologies. Mark Hurd then shuttered innovation while giving the appearance of progress through acquisitions, and Apotheker has dropped the pieces to the floor.

The one constant in all this has been a board that has been in change. Where a succession of HP leaders thought the pace of change was gong to settle down, it has instead accelerated. Being on the leading edge of change is essential to success in tech. It's the trailing edge where the bleeding occurs.

But where there are losers there are always winners, and new opportunities. Here are some of the companies benefiting from HP's problems:

EMC (NYSE:EMC) competes with HPQ in the area of data storage units for enterprises. Its VMWare unit, which was only partly spun-out, is a leader in the cloud. It has no exposure to the desktop. Its performance has been fairly steady the last year but with doubts swirling about HP's viability it could pick up share quickly.

Dell (NASDAQ:DELL) competes in many of the same areas as HP, and its stock has been hammered alongside HP's. But it doesn't have succession problems, its balance sheet has a lot of cash, and it could pick up share as HP collapses. Dell's tablets haven't been doing well, but they run Google's (NASDAQ:GOOG) Android, not the doomed webOS. They also have good relations with China and are scouring the country for low-cost production opportunities.

IBM (NYSE:IBM), like EMC, is in the data storage business, a key component for private clouds. Its service-based model is what HP was said to be moving toward. It has no exposure to PCs, having sold that business to China years ago. But it does do data storage, and could take share from HP in that area.

Atmel (NASDAQ:ATML) makes micro-controllers used in tablets and smart phones. And it's selling at a pathetic PE of 7 right now. Kapitall has reported to Seeking Alpha about its rising profitability, Either investors are going to discover this company or a strategic buyer will, like Intel.

Let's review where computing is heading. PCs are going to have to evolve away from desktops to survive. Tablets are going to become the dominant clients in most applications. Enterprise hardware and software companies are going to be squeezed by the cloud and a move toward hosted applications.

There are going to be innovations. There are going to be more opportunities. Anyone who doesn't believe that is an idiot, or a former HP CEO.

Disclosure: I am long IBM.