Plenty of companies strive to copy the IBM (NYSE: IBM ) model of success: software, hardware, and services in one neat package, sold on a global scale. Hewlett-Packard (NYSE: HPQ ) has already built that machine -- with a few extra parts bolted on. Now its challenge lies in fine-tuning that engine until it sings.
In some ways, HP actually has Big Blue beat. If IBM wanted to emulate HP, it would have to buy its strategic partner Brocade (Nasdaq: BRCD ) for a stronger networking presence, and Lexmark (NYSE: LXK ) to enter the printing business. Oh, and HP is the world's biggest builder of laptops and desktops, whereas IBM pulled out of that market years ago to focus on big-iron and midrange server systems. If IBM is everything to a focused range of enterprise customers, HP is trying to be everything to everybody.
That sprawling model is working wonders for HP right now. Second-quarter sales jumped 13% year over year to $30.8 billion, while GAAP earnings took a 28% leap to $0.91 per share. Enterprise-class servers and storage led the way with a 31% sales gain, followed by consumer-level systems at a 21% growth pace. Desktop sales increased more quickly than notebooks, reversing an age-old trend.
CEO Mark Hurd also shared some fresh insight on what HP's next big acquisition might mean. Palm (Nasdaq: PALM ) will not only add smartphones and tablet computers to HP's formidable product arsenal, but also power future HP printers via its WebOS platform. Since printers tend to be networked these days -- even wireless, if you're willing to pay for the convenience -- it makes sense to insert a network-ready software platform with user-friendly interfaces to control the system. Next time you're waiting for a big print job to complete, it’s not a stretch to imagine killing time by playing a quick game or reading Fool articles on the printer's control panel. Can Lexmark, Epson, and Canon (NYSE: CAJ ) counter the benefits that a robust operating system on printers could provide?
IBM is still more profitable than HP and carries a bigger market cap. HP stock now trades at a price-to-sales ratio of just 0.91, while Big Blue fetches 1.72 times trailing sales. If I was a value investor, I'd take a good, hard look at Hewlett-Packard today. The business is moving in all the right directions with plenty of inefficiencies left to squeeze out of the system, and you can pick up shares at a rock-bottom price.