Hewlett-Packard (HPQ) is a brand name that has been synonymous with some of the most exceptional computers and accessories in the technological world. Founded in 1939, it basically started out as electronic test equipment maker, but would later on specialize in producing components for the computer industry.
The growth of Hewlett-Packard has been gradual and has turned it into the second-largest computer hardware provider in terms of sales, while its main rival IBM (IBM) comes in at first place. The battle for domination has been rather intriguing from an analytical point of view, as each company has tried to turn the tables to its favor. Although Terradata (TDC), Silicon Graphics International (SGI) and Dell (DELL) are also key contributors to the multibillion-dollar computer hardware industry, Hewlett-Packard has been able to stay well ahead.
IBM currently enjoys a market capitalization of over $231 billion, leaving Hewlett-Packard far behind in this sense as the latter trails at about $48 billion. This is almost a fifth of IBM's market cap, which indicates that Hewlett-Packard is still far off from taking the reins from the top computer hardware provider. There is, however, hope for many investors, as figures show that Hewlett-Packard has a slightly better price/earnings growth for the next five years when compared to all its rivals.
With an operating margin of about 8% for Hewlett-Packard, 7% for Dell and 20% for IBM, keen investors will no doubt see that IBM is operating at a greater efficiency that its two competitors. This is despite the fact that it is the larger of the two firms. There is a great need, therefore, by the decision makers at Hewlett-Packard to re-evaluate its strategy in order to ensure that it can effectively compete with its competitors.
Revenue for the trailing 12 months has put Hewlett-Packard in the lead. The company was able to attain revenue of about $124 billion, closely followed by IBM with $107 and finally Dell trailing with $62 billion. I take this as a sign of great things to come as Hewlett-Packard will be able to escape all of its misfortunes and get a steady footing in the stock market.
Oracle Legal Controversies
As with any IT and computer hardware firm, Hewlett-Packard has had its share of legal controversies. This has been majorly brought about by patent infringement cases, along with an array of disputes regarding marketing practices. The latest suit filed by Hewlett-Packard involves enterprise software production giant Oracle (ORCL). Earlier in the year, Hewlett-Packard asked for a ruling after suing Oracle when the latter announced that it would be ceasing the production of any new versions of its products that would be compatible with Hewlett-Packard's Itanium processor. Should Oracle choose to do this, the effects may be disastrous to the numerous clients who depend on Hewlett-Packard's high-end servers.
Oracle threatened to pull out of a binding agreement with Hewlett-Packard after reports came out that the Itanium processor was an end-of-life processor. Hewlett-Packard's CEO, however, took the stand and refuted any claims that had been made by Oracle with regard to the processor's future. Despite the fact that Oracle was intent on using fraud claims to get out of the agreement with Hewlett-Packard, the judge dismissed it. Only time will tell whether or not this case will be settled in Hewlett-Packard's favor, as such proceedings have been known to last for months or even years.
British Acquisitions
One of the latest acquisitions by Hewlett-Packard has put a smile on the faces of many of its shareholders. The acquisition of Autonomy, a British software firm, for approximately $12 billion has been one of the wisest and largest investments made by Hewlett-Packard. This acquisition has meant that Hewlett-Packard will be exposed to a new customer base in Europe, which is sure to increase its net income for the coming years.
Since Autonomy also brings a long list of patented technology with it, Hewlett-Packard will be also benefit from the revenue generated by it. Given that the software firm had been experiencing a drop in its share price, deciding to sell to Hewlett-Packard was the best course of action, and the latter's share price seemed to improve after the acquisition went public.
Looking at the price-to-earnings ratio of Hewlett-Packard, which currently stands at about 9 as compared to IBM's 15, I think this stock has been greatly undervalued. That's because Hewlett-Packard has been able to adapt to major changes in the computing industry and thus has the capability to grow exponentially and expand its reach to all corners of the globe. Should the policy makers prove to be competent enough, analysts agree that Hewlett-Packard's stock will undoubtedly go up.
Despite the fact that great care should be taken when considering which computer-based stock to invest in, Hewlett-Packard is a safe stock for investors looking for low risk. Since it is well-diversified, one can be assured of growing their investment and not losing it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
