Why Left for Dead? As a poster child for an irrelevant PC-centric business model in the tech world, Hewlett-Packard (HPQ) was ticketed for irrelevance. Revenue growth stalled, profits were (and still are) squeezed, the company wrote off a series of poor investments (most notably Autonomy, but also Palm and EDS), and analysts pointed to slowing PC growth as the death knell for HPQ.
What’s Changed? Hitting rock bottom in November 2011, the company found resurgence and swagger: Newly installed CEO Meg Whitman raised the company dividend 10% in March 2012, Board Chairman Ray Lane resigned in April, and investors flocked to the stock based on its bargain-basement valuation.
Long-Term Prospects: Whitman & Co. have at least put the company on an even keel, and focused HPQ on growing the business by making it the new IBM (IBM), marketing the company as a services-oriented “enterprise solution” provider for the PC and server markets.
But it isn’t really working yet: although Q1 ’13 earnings results stunned the Street, revenue fell for a seventh consecutive quarter, with drops across all segments, including desktop (-18%) and notebook (-24%) sales, and more ominously, 10% in the enterprise space.
Where is HP going to generate that revenue growth Whitman’s looking for? At this point there doesn’t appear to be a good answer. The only good news is HPQ sits on $12 billion in cash, and with layoffs and closings helping margins, cash flow of just over $3 billion will continue to feed stock buybacks and dividends.
Verdict: I still don’t see why this stock keeps soaring, and, despite the head-scratching run, I’m not interested as a long-term buyer.