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Surprise! The Hewlett-Packard Turnaround Is for Real

Few thought Hewlett-Packard would even survive under CEO Meg Whitman, but now believers are stepping into the stock.

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That’s part of the reason the original Slate struggled; the one-size-fits-all approach only works if you’re Apple and the device does everything you need it to do. Whitman is just as big a fan of Android as she is of Windows OS, depending on the purpose of the device. Likewise, the company is just as apt to use an ARM (ARMH) chip as it is an Intel (INTC) processor, again, depending on the purpose. In Whitman’s exact words, “Our strategy is about supporting multiple OSes and technology that consumers favor.” In other words, diversity has made its way back into the company’s strategy-planning sessions.

HP also is getting serious about controlling costs and being internally efficient. This effort so far has been broad, ranging from making plans to layoff 27,000 employees by 2014, to cut the number of products it unnecessarily manufactures (Hewlett-Packard had been making as many as 2000 laser printers), to implementing a potent CRM solution, and to going ahead and writing down — to the tune of $8 billion — most of the Electronic Data Systems acquisition from four years earlier, which was dragging down the company’s books each and every quarter.

The proverbial crown jewel for Hewlett-Packard, however, is the new line of so-called “Moonshot” microservers.

Simply put, Moonshot servers are poised to raise the standards for Big Data and cloud computing companies. Some industry experts say the Moonshot 1500 microserver systems only need about one-fourth of the square footage that traditional servers need, and the Moonshot line only consumes about one-tenth of the electricity needed to operate most of the server banks in use today. That’s an amazing leap, and amazing savings for organizations looking to get a handle on server-based overhead costs.

Meg Whitman already has suggested that Apple, among others, is interested in using Moonshot technology.

Bottom Line

Just so there’s no misunderstanding, it still will be years before the Whitman turnaround plan gets up to full speed. Whitman acknowledges herself it won’t be until 2016 that the full fruits of the recent laboring will be blooming.

As evidence of the significant time needed to complete the turnaround, despite recent product launches and streamlining, sales and profits still are expected to decline again next fiscal year, by 2% and 12%, respectively. However, the company knowingly caused it by shrinking its way to better efficiency. But the proverbial light at the end of the tunnel is showing up now, and that’s good enough for the market to start rewarding HPQ … a notion that few would have entertained just a few months ago.

As tough as it is to step into a stock that has nearly doubled in just a few months, that forward-looking P/E of 7 isn’t a pipe dream. In fact, it leaves plenty of room for more upside, near and far.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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