Cisco Systems, Inc. (CSCO): Hewlett-Packard Company (HPQ) Is Not Out of the Woods Yet

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Hewlett-Packard Company (NYSE:HPQ) has been one of the best-performing stocks this year, up by more than 50%. The stock rallied, in part, on the turnaround hopes of optimistic investors hoping to beat the market. This turnaround has failed to materialize so far, as the company is still seeing declining revenue in its core businesses. Hewlett-Packard Company (NYSE:HPQ) has had trouble adjusting to shifting enterprise and consumer markets, and it looks increasingly unlikely that the company will be able to turn things around on time.

Hewlett-Packard Company (NYSE:HPQ)

Weak earnings report

Hewlett-Packard Company (NYSE:HPQ)’s latest earnings report was a severe disappointment to investors, especially in terms of hardware sales. While non-GAAP diluted EPS of $0.86 met the consensus, this figure was down 14% from the previous year. Revenue of $27.2 billion was down 8% year over year and slightly missed the $27.3 billion consensus.

The worst performing segment was personal systems, with an 11% decline in sales, while enterprise group revenue dropped 9%. What’s more, PC sales are expected to decline further this year, even in emerging markets, which further underscores the need for Hewlett-Packard Company (NYSE:HPQ) to focus on its other segments. 

Still, there were some bright spots, as personal systems revenue dropped less than in the last quarter. Another positive development for the company is its recently announced data analytics deal with Cerner, which is expected to boost HP’s position in the health-care IT business, an avenue that provides significant opportunities for growth.

What really perplexed investors was the outlook, which came in well below expectations, leading to a dramatic fall in stock price. The company’s turnaround was previously seen gaining traction in fiscal 2014, but CEO Meg Whitman has now stated that revenue growth for the coming fiscal year is “unlikely.”  

Still, she was fairly upbeat about the company’s results, saying they reflected progress in the company’s turnaround effort. Yet, compare these results to those of its major competitor in the personal systems space,  Lenovo Group Limited (ADR) (OTCMKTS:LNVGY).

In the most recent quarter, Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) overtook Hewlett-Packard Company (NYSE:HPQ) to become the world’s No. 1 PC maker. Somehow, the company is managing to increase earnings and revenue in a declining market, which is evidence of its outstanding execution, especially in China.

For its latest report, revenue was up 10% year over year and 12% sequentially. While notebooks are still Lenovo Group Limited (ADR) (OTCMKTS:LNVGY)’s bread-and-butter product, investment in tablets and smartphones has been paying off. The company is set to release a number of new products for the holiday season. Its new offerings include a tablet and a smartphone, meant to compete with the more established names in mobile computing.

Too little, too late?

HP’s revised outlook comes amid growing speculation that the company will not be able to meet its turnaround goals. Part of the problem is that, like many “old tech” companies, Hewlett-Packard Company (NYSE:HPQ) has been slow to recognize and adapt to major industry shifts such as mobile and cloud computing. Only recently did the company begin to mention cloud computing at all, which has not been helping its enterprise segments.

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