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Hewlett-Packard In Hot Water

|Includes:Dell Inc. (DELL), HPQ

The CEO of Hewlett-Packard, Meg Whitman, announced a restructuring plan for the company in 2012. The reasons for this are crystal clear. PC shipments are to decline to an 8%, according to the International Data Corporation (Pending:IDC). The dynamics in the technology sector are changing at a rapid pace. Smartphones and tablets have made their way in the lives of the consumers, giving the personal computing industry a run for their money. Smartphone shipments are to grow 40% YoY within this year. So, where does HP stand?
Hewlett-Packard is in hot water due to the changes in the technology industry. Hence, it has come up with a five year plan, which includes rebuilding processes, recovering the issues, and eventually expanding. 29% of HP's revenues come from its PCs. The company has not been following up with the industry trends. Hence, Hewlitt-Packard's sales have come down to a 22% YoY, with an 8% decline in its revenue.
However, the five year plan is going down the drain. Meg Whitman announced his doubts regarding the total YoY growth in fiscal 2014. Later on, Whitman said that a lot needs to be done to regain a reasonable market position. From what I analyze, Hewlett-Packard's five year plan is anything but promising. Presently, emerging markets are thriving on smartphones, tablets and wearable technologies, and HP is a stranger to all.
Its 4yr revenue annual growth is 0.4%. It is stated that HP's growth in the next two years is bleak. Investors have lost faith in HP, since it has not been following up with the changes in industry trends. This has resulted in failure.
Hewlett-Packard is oblivious to research, development and planning towards the smartphone industry, or wearable technologies. HP has a history of tech enterprises, with Palm and EDS losing money rather than gaining profits. Hence, considering these facts, one wonders where the company is going, and if there are chances for bankruptcy. HP has debt obligations of $7 billion in the next two years, with a 97%debt equity ratio.
On the contrary, Dell is being privatized under a $25 billion deal, in order to cope up with the declining desktop industry. Its investments in enterprise solutions will continue. This could be the next big thing for HP, considering the major decline in its profits.
There is also the fact that cloud services are making it big in the industry. IDC is of the view that public cloud services will have an annual growth of 23.5% by the next five years. HP's Moonshot servers take up 6% of the space compared to other servers, which is close to nil, and cost 77% less. If HP can cater to cloud services and big data, it could grow in the enterprise segment.
However, with the PC industry going down, and smartphones, tablets and wearable technologies taking over a large segment of the market, one is uncertain about the future of Hewlett-Packard. If HP wants to stand tall among the competitors in the market, it needs to revolutionize on a big scale, and it needs to do so fast.

Stocks: DELL, HPQ