HP Tries To Emulate Apple In 2 Key Areas

Sep.25.12 | About: HP Inc. (HPQ)

Hewlett Packard (NYSE:HPQ), the world's largest PC maker, is fighting hard to defend its number one position and, like most companies right now, wishes it was as popular and profitable as Apple (NASDAQ:AAPL). HP stock has been struggling for the last few years. As a result of market share decline, CEO upheaval, indecision regarding their PC division, and various other factors, the stock price is down more than 50% from two years ago and revenue is currently down 5% for the quarter. In addition the company experienced a net earnings loss of $8.9 billion for the third quarter.

CEO Meg Whitman is striving to turn HP around. What's the new strategy for the company? Become more like Apple. HP is making great strides to catch up with Apple through the old hallmarks of design and innovation.

For more than a decade, Apple has been defined by its spectacular design and innovative products. Since taking over as CEO of HP, one of the biggest areas in which Ms. Whitman hopes HP can emulate Apple is PC design. She was recently quoted in Forbes as saying, "I don't think we kept up with the innovation. The whole market has moved to something that is more beautiful." With Apple as the standard of beauty in the tech world, many of the new HP laptops now have brushed metal exteriors, just like Apple Macs.

HP has also come out with a new line of laptops that are thinner, sleeker just like a MacBook Air. They are even beginning to take on the distinctive MacBook Wedge shape. Consider the image below, if it weren't for the large HP lettering one might think it was an Apple.

Take note that HP is seeking to distinguish itself from Apple by including the latest hip speaker system from Beats audio.

In proper Apple fashion, HP is also releasing new innovative products. A recent HP press release highlighted new laptops going on sale this fall. These laptops not only are beginning to exhibit HP's new design aesthetics, they also feature a touch sensitive screen that can be detached and carried around as a tablet. This hybrid product could propel HP forward as it sets a new standard for laptop functionality.

HP will also will have little to fear from Apple in terms of competition with the hybrid laptop concept as Apple CEO Tim Cook vilified the concept back in April. As quoted by CNN, Tim Cook stated,

"Anything can be forced to converge, but the problem is that products are about tradeoffs, and you begin to make tradeoffs to the point where what you have left at the end of the day doesn't please anyone. You can converge a toaster and refrigerator, but those things are probably not going to be pleasing to the user."

So is now the time to buy HP?

Over the past year HP has gone from as high as almost $30 per share to as low as $16.78 per share. It currently sits around $17.50 per share. So with HP releasing new innovative laptops and a share price that has climbed up from its yearly low, is now the time to buy HP stock?

While HP is certainly making great strides forward in terms of design and innovation, there are also significant concerns. First, HP's strategy of investing immense research and development energy into replicating Apple's design seems like a poor long term business strategy. If HP is content to let Apple define what HP products should look and feel like, then HP is relegating itself to second place. This would almost certainly seal its loss of the number one position in the PC market.

Additionally, Apple fans are so distinctly loyal to the brand that it is unlikely that HP will be stealing any customers away from Apple MacBooks. HP is essentially fighting over an ever shrinking piece of the pie as more and more people shift to Apple products.

Plus, perhaps Tim Cook is right and customers will have little interest in a hybrid laptop. If HP can't present the hybrid laptop as an innovative product, freeing people from the need for both a tablet and a laptop, HP will be stuck with another failed product line, much like its mobile business.

Finally, Meg Whitman has been running HP for almost a year and revenue is still declining across a broad spectrum of the company. Total PC unit sales were down 10% for quarter three, Services revenue was down 3%, Enterprise Servers, Storage and Networking revenue was down 4%, and Personal Systems Revenue was down 10%. In fact the only division to have any revenue growth was the software division with 18% growth, driven by 65% growth in software services revenue.

Conclusion

Keep an eye on HP, with Meg Whitman's new vision for the company, innovative products, and a clearer focus this is a company that could soon experience significant growth and a big boost in share price. It won't ever be an Apple but this is a company that could soon be making significant profits.

Nevertheless, now is not the time to buy into HP. Let's give HP some time and see if the new laptops, hybrid laptops, and Windows 8 can generate decent profits. If the first quarter earnings for 2013 show solid sales growth through the holiday and into 2013 then it might be time to buy. For now, just watch and wait. HP is not the next Apple...not yet at least.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.