Has Hewlett-Packard Company (HPQ) Turned the Corner?

Whitman indicated that Personal Systems would resume growing by the end of the year, so it’s very likely that HP’s Windows products will have mostly shifted to touch-screens by then.  In the mean time, HP is back filling PC sales with a couple of Android tablet devices, and its first Chrome OS laptop.

I doubt that Microsoft Corporation (NASDAQ:MSFT) is very happy about this, but it’s clear that HP needs the Android tablets.  HP plans to introduce an Android convertible, the Slatebook X2, based on the Nvidia Tegra 4 processor with a 10.1 inch screen.  Even though HP will offer very compelling Wintel-based convertibles as well, the Slatebook X2 will beat them on price.

Adding to Microsoft’s consternation, and Google’s glee, HP’s Pavillion Chromebook will be its first Chrome OS device. Chromebooks have been the best selling notebook computers on Amazon for quite a while, and the key is price. HP’s Chromebook will sell for $330, making it the lowest priced laptop that HP offers.

HP’s diversification into devices based on operating systems provided by Google is critical to lowering its exposure to the vagaries of Windows 8, and may even become significant sources of revenue in the coming year.

Is the optimism justified?

HP continues to restructure to cut costs, but this has yet to yield much cost reduction.  Gross margin is still a very lean 23% and SG&A is only just beginning to decline from a year ago.  As a percent of revenue, R&D has actually increased year over year and quarterly, and let’s hope this trend continues.  HP needs to innovate in order to improve gross margin with new products.  HP’s R&D revenue percentage is comparable to Apple’s (2.57%), which I also think is too low, but well behind Microsoft (12.9%) and Google (13.15%). Overall, I think the organizational trends are in the right direction.

The advent of new low-power Intel processors and Windows 8 updates will help drive growth in the Windows PC industry starting in the second half of the year.  If HP can transition their product line to be almost fully touch-screen based, then Personal Systems will resume sustained growth and investor optimism will have been justified.

The article Has HP Turned the Corner? originally appeared on Fool.com and is written by Mark Hibben.

Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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