Hewlett-Packard Looks Recession-Proof

Gartner and IDC have just released preliminary results for Q4 that declare Hewlett Packard Co (NYSE:HPQ) as the leader of the worldwide PC market in 2007. Gartner says it has 18.2% share versus Dell (DELL) at 14.3%. In 2006, HP and Dell were in a tie for the top slot.

It was not just the PC business that did well at HP in 2007. HP showed an overall growth of 14% with net revenue of $104.3 billion in fiscal 2007. In 2008, it expects revenue to be approximately $111.5 billion. Since Q4, it acquired NUR Macroprinters Ltd. (NURMF.PK) for $117.5 million in order to increase its presence in wide-format printing.

Segment-wise, Personal Systems Group (PSG) showed 21% growth in net revenue to $36.4 billion accounting for around 35% of total revenue. Imaging and Printing Group revenue increased 4% to $28.5 billion (27.3% of total revenue). Enterprise Storage and Servers (ESS) had revenues of $18.77 billion, a 5% growth and 18% of revenue. HP Services revenue grew 3% to $16.65 billion (16% of total revenue). HP Software revenue increased 74% to $2.3 billion (Though the increase is exponential, it is just around 2% of the total revenue). HP Financial Services revenue grew by 12% to $2.3 billion.

HP has done well globally, a strong reason for it to be unfazed by the slowing U.S. economy. In 2007, 67% of its total revenue was from outside the US. In the fourth quarter, Asia-Pacific grew by 20%, EMEA by 19% and Americas was up by 10%. BRIC countries grew 37% y-o-y in Q4 and accounted for 9% of total revenue.

Credit for this stunning turnaround goes to its CEO Mike Hurd who has cut around 15,000 jobs since taking over in 2005 and expanded into China and India. This strategy is bound to act as a cushion this year for HP with the U.S. economy expected to grow just 1.9% versus 2.2% last year (as per World Bank estimates). China is expected to grow 10.8%, while India’s growth will be at 8.4%.

HP’s stock is currently trading around $43, and its market cap is around $112 billion. The drop in the stock is entirely due to the macro market softness, and is a good long-term buy and hold opportunity.

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Comments

[vboring:]

buy b/c it is doing well internationally?

does anyone really believe that any economy will decouple? the world's economies are more strongly coupled today than ever before. the rest cannot be healthy while one is sick.

who is going to buy the BMWs, Porsches, Toyotas, and Hyundais, exactly, if not americans? to take one sector as an example.

greater integration leads to greater stability, but also greater exposure to problems.

2008 Jan 18 01:10 PM

[SmartGuySto...:]

The WSJ did a whole piece on how China is more dependent on exports than ever. The presupposition that the world will steam forward without it's largest customer base is nothing more than Wall St. sales speak to buy more time while passing the BRIC bag to the herd who don't know any better ...

2008 Jan 18 02:07 PM

[Alpha Seeker:]

I doubt it. If this turns out to be a recession, HP will go down with the rest of the recession-proofed stocks. This is an oxymoron. Rob,
WallastonInvestments.c...

2008 Jan 18 02:40 PM

[stan41:]

might be recession proof, but not likely BEAR-proof. A falling tide....

2008 Jan 18 05:42 PM

[Joe2:]

Sramana - if you article is about Hewlett Packard then I agree with you. However if your implication is about HPQ (the stock), then my view is the stock doesn't move just based on the company's reported results. It's about a) what was built into the stock vs actuals, b) the guide for next few quarters, and c) management commentary. Take a look at CSCO's recent results. Or NTAP's.

That said, I absolutely agree that the company appears to be fiscally well managed. However I am STILL missing significant new vision and ultimately you can't keep showing great results only through fiscal discipline (however important that may be).

My -$0.02.

Nimish

2008 Jan 19 01:26 PM

[In the money:]

The rest of the world will be 6 months behind us in a recession.

2008 Jan 19 03:12 PM

[rjs:]

hp's ceo's name is Mark, not Mike. HP would do even better if they were a bit more channel friendly.

2008 Jan 19 04:39 PM

[pochovilla:]

Nov 07 ~ $53. Jan 08 ~ $43 down ~$10.00 in two months. New definition of recession proof.

2008 Jan 19 05:50 PM

[VP of Commo...:]

Bonds and shorts are bear proof.

2008 Jan 19 08:37 PM

[vm:]

But how do you explain the recent drop in prices - surely it has been a very steep drop. I am long on HP and just puzzled why the stock took a beating like this ...

2008 Jan 19 11:55 PM

[Disclosed:]

I work for Hp in IRELAND and HP have cancelled any Christmas Bonus's
Christmas Parties have been cancelled all while they are booming in such hard times but still using this as the economic downturn as a excuses meanwhile several of there weakening competitors are rewarding there staff during these festive times

2008 Dec 18 09:22 AM