Hewlett-Packard Could Sink In 2013 Without New PC Innovations

Apr.24.12 | About: HP Inc. (HPQ)

A lot has been going on these last couple of weeks in terms of economic uncertainty, stock prices fluctuating, and investments we thought would be profitable completely letting us down or vice versa. However, last week technology stocks were ahead of the game, with Hewlett-Packard (NYSE:HPQ), a leading name in the technology sector, impressing investors and analysts alike by becoming a top performer. It fared better than other companies we came to depend on for "top profits," including Google (NASDAQ:GOOG), Nokia (NYSE:NOK), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and AT&T (NYSE:T).

Hewlett-Packard revealed extremely optimistic PC industry market results and was up 6.6%, according to the first-quarter results reported by IDC and Garner Inc. -- a 3% increase from last year's figures. The PC giant reportedly shipped over 15 million PCs in the first quarter, securing its place as the No. 1 PC manufacturer in the world in terms of total number of units shipped. For a company that controls 18% (16.9% at the same time last year) of the total PC market, according to IDC, Hewlett-Packard is definitely in part responsible for the global increase in PC shipments -- which also increased 2.3% since this time last year and managed to exceed IDC's predictions.

How does Hewlett-Packard compare with its competitors?

Hewlett-Packard's biggest rival, Lenovo (OTCPK:LNVGY), had a slight drop from 13.6% to 13.4% in the first quarter this year compared to last year's fourth quarter. However, it has little bearing on the fact that Lenovo is still doing exceptionally well, with a 44% increase in the total number of units shipped from this last year, bringing Lenovo up from being the fourth-largest PC manufacturer in 2011 to the second largest this year.

As for the third-largest PC manufacturer, Dell (NASDAQ:DELL), its share price also dropped from 12.5% at the end of the fourth quarter last year to 11.6% in the first quarter this year. There was also a 2% decrease in total units shipped compared with this time last year.

What does it all mean?

From what I can see, these latest figures and comparisons are all the proof that we need to be assured that Hewlett-Packard is back in the race -- and at the forefront, specifically, after suffering a loss in 2011 due to hard-drive shortages caused by the floods in Thailand, the scandal which resulted in one CEO resigning and the resignation of former CEO Leo Apothekar, who publicly contemplated "spinning off" Hewlett-Packard's PCs. Since that significant drop, the company saw its best single-day increase on Wall Street since March 2009 with a 7.2% increase. On the same day, Dell (the second-largest U.S. PC manufacturer and third largest in the world) only made 1 cent, while Apple (OTC:APPL) dropped 0.5%.

What turned things around? A number of things, not least of which was former eBay (NASDAQ:EBAY) CEO, Meg Whitman, who replaced Apotheker. Whitman eliminated all talk about spinning off Hewlett-Packard's PCs and instead proposed to merge them with Hewlett-Packard's printing business. The result? Hewlett-Packard stock has increased 10% since Whitman's promotion.

The main reason why I have a lot of confidence in Hewlett-Packard at the moment is because history has shown us that periods of slower growth are followed by recovery periods, where the company improves its technologies, makes various product/service replacements and possibly replaces key people in management -- all of which work to develop a stronger and more promising company. Hewlett-Packard has been steadily going up, and for this reason I foresee PC shipments to increase significantly by the fourth quarter this year. This is one investment you definitely want to be a part of.

Analysts were worried that there is a trending decline in PC sales in major buying regions like the U.S., China and India, and that the first quarter after the holiday season would witness a great dip in sales (as usual). Let's take a quick look at what happened in the first quarter. 89 million PCs were shipped in total, a 1.9% increase from last year's figure and 1.2% higher than what research firm IDC had expected. Rather than decline 0.9% as the firm had predicted, PC shipments are up 2.3% from last year's fourth quarter. IDC was of the opinion that with the emergence and popularity of new technologies like the iPad, PCs would be taking a back seat. I'm sure Hewlett-Packard enjoyed proving the firm wrong!

On the other hand, PC shipments did see a 3.5% decline in the US, which was still better than the 6.1% that had been anticipated, and a 3.2% decline in Latin America. And since we're talking "geographical shipments" now, shipments to Asia increased over 2% (which could have done better but was weighed down mostly to less demand coming through from China and India), Japan saw a significant 11.5% increase, and shipments to the larger Europe and Mideast also saw a 6.7% increase. That proved that even with a weaker market in the power countries -- the U.S., Brazil, China, and India -- the rest of the market can still bring a company out with a profit.

Is now the right time to buy into Hewlett-Packard?

For people who were at one point hesitant or unsure about investing in Hewlett-Packard, the latest news released reveals it as one of the leading technology brands and India's No. 1 most trusted technology brand two years in a row. Hewlett-Packard has all the ingredients for success -- and that success is looking to multiply at a faster rate in the future after a steady rise for the past year.

Top rival Dell saw a decline as it changed directions and focused on higher-end and higher-profit machines, while Hewlett-Packard is constantly looking for ways to expand its PC market despite some hurdles along the way -- including a routine audit check performed by the Korea Fair Trade Commission over an alleged "price fixing" accusation, which did not make management bat an eyelash. Spokesman for Palo Alto, Ca.-based Hewlett-Packard Michael Thacker released a statement that left investors feeling more confident than ever: "Hewlett-Packard conducts its business with uncompromising integrity and we adhere to the highest standards of business ethics." The stock managed to keep investors optimistic with an upbeat performance of 6.23%, which the company managed to preserve for the month at approximately 1%.

What was once a strictly PC company has since expanded beyond personal computing to offer printing, software, services and IT infrastructures as well. The fact of the matter is that shareholders want to see change. They are looking for innovation and new ideas. If Hewlett-Packard can give them that by Q4, then there's no stopping this PC giant, with a lot of renewed interest to be sparked throughout the year if it managed to stay at a profit. However, if the company fails to deliver, it could be the death knell for Hewlett-Packard in 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.