It’s quite interesting to notice a so called “comeback” that’s happening in the PC world. The launch of Windows 8 by Microsoft has thrown PC manufacturers back in the game with over 60 million licenses sold since launch. The question of PC or tablet is now being re-analyzed. Leaving the whole argument of PC vs. Tablet and Mac vs. PC, let’s take a look at what 2013 has in store for the PC giants and who’s in the driving seat for now.
Hewlett-Packard Company (NYSE:HPQ) recently acquired the software maker Autonomy, this has turned out to be arguably one of the worst acquisitions ever. Hewlett-Packard did not perform adequate due diligence before making such a wild investment and now this move is being called the joke of the year by investors. Clearly, Hewlett-Packard and Dell Inc. (NASDAQ:DELL) have been trying to diversify their business over the past few years with both of them having different results. The end objective of both these giants is to stay in par with International Business Machines Corp. (NYSE:IBM) as far as diversity is concerned. Keeping 2013 in mind lets analyze which of the three would be the safest bet.
Financial performance of the Trio in 2012
IBM has been trading at price multiples quite near the industry average, whereas DELL and HP are trading below the industry average. In figures, the industry P/E average is at 13.9, Dell is at 7.1, and IBM is at 13.8 (closest to the industry average). These figures justify each company owner’s earnings. In 2012, HPQ reported a loss of $5.61 Billion, whereas Dell profit figures went up to $3.1 Billion and IBM is at whopping $13.08 Billion. The decline in HPQ owner’s earnings is a testament to the fact that HPQ is and should remain a cheap stock, whereas IBM deserves to be up at the top with other premium stocks.
Let’s take a look at the return on invested capital figures of these three giants. Return on invested capital is basically the return dollar generated from a business investment. In 2012, the ROIC for IBM was 70.04%, Dell was at 36.94%, and HPQ was at a disappointing -43.17%. The figures quoted so far show how well IBM is doing, but 85% of IBM earnings are from services and consulting business. HP and Dell are yet to diversify their respective businesses to that extent.
HPQ provides a dividend yield of 3.77% which is the highest as compared to Dell’s 1.60% and IBM’s 1.74%. When it comes to cash flow generation HPQ is in a very strong and stable position. HPQ operating cash flow during the fourth quarter alone was $4 billion and a total of $10.6 billion in 2012. These funds helped HPQ to pay off some of its debt as well.
Hardware, as far as IBM is concerned, consists of only 15% of its business, which means that software and consulting is what IBM is concentrating at right now. Though Hewlett-Packard and Dell are trying to pursue a similar direction, Dell already generates 31% of its sales through services and consulting. HPQ has set a target of 9% sales through software by 2015, as of now that seem pretty far off. Cloud computing, enterprise, and software are the areas where HPQ and Dell are shifting focus to, a place where IBM is pretty dominant.