Hewlett-Packard Company (HPQ)’s Rally Was the Return of Market Sanity

Competitive position

Like other PC giants, HP has been facing stiff competition from Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG) mobile devices. Mobile device shipments have continued to grow rapidly, while PC shipments have declined. In Q4 2012, PC shipments declined by 6.4% year over year. In comparison, smartphone shipments and tablet shipments grew 41.7% and 75.3%, respectively. In these markets, many of the traditional PC giants are essentially nonexistent.

In smartphones, Microsoft Corporation (NASDAQ:MSFT)’s Windows Phone OS only had a 2.6% market share. In tablets, Microsoft Corporation (NASDAQ:MSFT) had just 1.6% share in Q3 (strategyanalytics) and, according to IDC, Windows 8 did not gain a lot of ground in Q4. In comparison, Android and iOS had 70.1% and 21% market share, respectively, in smartphones. The two OS’ also dominate tablets.

Looking forward, despite the rise of mobile devices, desktop PCs and servers are still crucial to the modern world, and Hewlett-Packard Company (NYSE:HPQ) is the top vendor in both markets. Desktops are important for processor intensive programs and servers are important in enterprise, cloud, and the internet. In Q4 almost 90 million PCs shipped worldwide. Furthermore, HP only experienced a decline of 0.6% in shipments, versus the 6.4% decline for the overall industry. The only segment that could be in serious trouble is printing. However, just looking at all the paper media out there, it is hard to see printing completely disappearing anytime soon.

Finally, while Windows 8 is slow at gaining traction, the OS provides an opportunity for innovative devices including tablets. Windows 8’s market share of desktops rose to 2.67% in February from 2.26% in January (netmarketshare). Overall, Hewlett-Packard Company (NYSE:HPQ) has survived years of bad management and, despite the ridicule that Whitman has faced, she is a much better CEO than her recent predecessors. HP, without management making bad acquisitions, should be able to maintain its TTM earnings at around $3.10, and at that level the company is worth about $25 per share.

The article HP’s Rally Was the Return of Market Sanity originally appeared on Fool.com and is written by Alvin Gonzales.

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