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The Split at HP

Posted on Tuesday, Jan 6th 2015

According to Gartner’s third quarter report on global PC shipments, the market fell 0.5% over the year to 79.4 million units. Growth in the mature markets was offset by a decline in the emerging markets. Gartner analysts believe that with tablet penetration crossing the 40-50% range, consumers are going back to PC purchases. Lenovo remained the market leader with 19.8% market share, growing significantly over its 17.7% share a year ago. HP is also seeing some gains as it reported a 4.4% increase in PC shipments to 14.2 million units. Its market share improved from 17.1% a year ago to 17.9% during the third quarter last year.

HP’s Financials

HP’s (NYSE: HPQ) fourth quarter revenues fell 2% over the year to $28.4 billion, falling short of the Street’s target of $28.68 billion. EPS of $1.06 was in line with market expectations and increased 5% over the year due to the several cost control measures taken by the company.

By segment, revenues from Personal Systems segment grew 4% over the year to $8.95 billion. Printing revenues fell 5% to $5.74 billion. The Enterprise Group revenues fell 4% to $7.27 billion and Enterprise Services revenues fell 7% to $5.51 billion. Both Software and Financial Services revenue fell 1% to $1.09 billion and $906 million respectively.

They ended the year with revenues of $111.5 billion, down 1% and an EPS of $3.74.

For the current quarter, HP projected EPS of $0.89-$0.93, falling short of the market’s projections of $0.93. They expect to end the year with an EPS of $3.83-$4.03, compared with the Street’s consensus of $3.95.

HP’s Expected Split

In the coming quarters, HP announced plans to split itself into two publicly traded companies. One of them will still be called HP and will sell computers and printers while the other one will be named HP Enterprise and will include software, storage, services, cloud, and financial segments. The split will also involve a lay-off of nearly 5,000 employees. Further details of the planned split were not disclosed except that the management will conduct a detailed evaluation of the financials to arrive at the cost structures of the two companies.

Analysts had mixed reactions about the split. While some were pleased with the news of the split as they expect the move to help reaccelerate their growth, others were more cautious doubting if the split would lead to additional costs involved in managing two separate public companies.

HP’s Expanding Products

HP continues to invest in development of newer products. During the quarter, they announced the launch of HP OpenNFV, a network function virtualization technology initiative that is expected to help communication service providers accelerate innovation. The service will help these service providers launch new services in a faster, simpler and a more cost effective way.

Last month, HP also unveiled the industry’s thinnest and lightest business-class notebooks under the EliteBook Folio 1020 family. The HP EliteBook 1020 and the HP EliteBook 1020 Special Edition are both ultra-thin machines at 15. 7 mm height and weight a meager 1 kg (2.2 lbs.) while delivering a 9-hour battery life, military-grade testing, HP Client Management Solutions, and optional LANDesk and Intel vPro technology. The machines also support enterprise-class security with features such as Trusted Platform Module, pre-boot authentication, fingerprint reader and exclusive HP Sure Start self-healing BIOS to help protect device, data, and identity. The machines will be available in the market starting February this year.

Within the enterprise segment, they’ve also added new Infrastructure services. They’ve released more scalable and cost efficient HP Integrity Superdome X and HP Integrity NonStop X servers. They’ve enhanced storage by offering a more flexible converged storage with multi-protocol flash-optimized HP 3PAR StoreServ systems featuring flat backup to HP StoreOnce. As part of their cloud offerings, they’ve released a converged infrastructure portfolio powered by HP OneView that merges converged infrastructure, hyper-convergence, and software-definition to manage important workloads in infrastructure as a service, cloud, mobility, and Big Data.

They have upgraded their commercial PC portfolio with the launch of the Z Desktop and Z Book mobile workstations that feature upgraded processors, graphics cards, and memory configurations. The Z Desktop Workstations have Intel Ivy Bridge Xeon E5-1600v2 and E5-2600v2 families of processors and a memory that runs 16% faster along with second generation Thunderbolt ports. The Z Book Mobile Workstations include a family of ultrabooks some of which are the smallest and the lightest ones available.

Finally, they have expanded their services offerings by including HP Datacenter Care and HP Consulting for Software-defined Infrastructure to provide customers with support for advanced cloud and software-defined infrastructure environments to help them transition to the cloud.

HP has also released some of the most inexpensive Windows-based laptops available in the market today. Last month, they released two versions of the Stream laptops, which are powered by Windows 8.1 and are priced under $230. The Stream 13 includes a dual-core, 2.16 GHz Intel Celeron N2840 processor, 2 GB RAM, and 32 GB solid-state storage with the ability to increase memory capacity through the unit’s microSD card port. The non-touchscreen laptop features a screen resolution of 1366 x 768 pixels and is able to handle 720p quality video. The machine is expected to give stiff competition to Chromebooks due to its superior value for money.

The market is happy with their performance. Their stock is trading at $39.57 with a market capitalization of $73.68 billion. It touched a 52-week high of $40.95 last week.



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