A strong core
Luckily for HP, it has a strong core business in the much maligned personal computer and printer spaces. While jettisoning these hardware businesses has been suggested several times, the cash flow provided by the legacy hardware segment has provided the cushion for the notable failures in the transition to a software and services model.
Interestingly, International Business Machines Corp. (NYSE:IBM) didn’t get rid of its personal computer business until it had pretty much completed the shift to the software and services model that Hewlett-Packard Company (NYSE:HPQ) covets. Only after asserting itself as a world leader in the new space, did IBM move fully away from the old business.
If HP is looking to model itself after International Business Machines Corp. (NYSE:IBM), it should hold onto the hardware businesses until it has successfully shifted its model, and maybe even a little longer just in case. While holding on to the lower margin businesses hampered IBM’s bottom line, waiting until the transition was complete allowed it’s earnings to really blossom over the past five years despite a stagnant top line.
HP’s recent results hint at the beginning of a turnaround. Although even the CEO admits there is still much to do, this could be the right time to jump aboard a company that is on the mend. Moreover, while Hewlett-Packard Company (NYSE:HPQ) is no International Business Machines Corp. (NYSE:IBM), the company’s relatively low share price could be a good buying point for anyone who missed IBM’s business model transition.
The article Healing Transactions At This Tech Giant originally appeared on Fool.com and is written by Reuben Gregg Brewer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.