Can This Merger Save Hewlett-Packard?

In the tech world, the minute you fall behind trends in new technology is the moment you lose your competitive edge. A recent case in point is Hewlett-Packard's (NYSE: HPQ  ) inability to adapt to the rise in tablet computers and cloud networks. The company failed to invest in these areas and is now struggling to reverse its fate. In an effort to buy the mired tech giant some time, HP's CEO, Meg Whitman, decided to combine the company's PC and printing businesses in hope of lowering costs and eventually lift HP out of troubled times. But is it enough to power a comeback? 

More of the same
Lots of investors, including me, want to see HP emerge as a successful turnaround story. But I doubt it will happen anytime soon. Merging the two businesses will lead to job cuts and ultimately money saved. However, this isn't a new strategy. According to The Wall Street Journal, the company's PC and printing divisions were combined in 2005, only to have then-CEO Mark Hurd divide them again six months later.   

Other than reducing costs through job cuts, this internal restructuring of its businesses does little to address the bigger problem HP faces. Once a Silicon Valley sweetheart, the company now struggles to keep up with competitors such as Apple (Nasdaq: AAPL  ) and Cisco Systems. Apple's newest iPad exceeded expectations recently, with the company selling 3 million devices during the first three days of its launch. Analysts now expect the iPad to outsell the entire PC market this year, according to a research note from Piper Jaffray analyst Gene Munster.

For further evidence that tablets are taking over the PC market, consider Amazon.com's (Nasdaq: AMZN  ) Kindle Fire device. Amazon delivered more than 4 million Kindle tablets in its latest quarter, according to research firm IDC. That puts Amazon in the No. 2 spot for tablet-PC dominance, with 16.8% of the market, behind Apple's 54.7% share of the global tablet industry. With tablet computers quickly taking the place of PCs, HP needs a mobile strategy, not a regurgitated merging of its existing PC and printing businesses.

No quick fix
If HP wants to survive in this increasingly mobile world, it'll need to start innovating alongside the competition. Shares are down nearly 9% since the start of 2012. To put that in perspective, consider that the S&P 500 is up about 12% so far this year. With an attractive P/E of 8.5, the stock would be a no-brainer if I thought the company was headed toward a turnaround. But I don't see HP recovering anytime soon, if ever. For this reason, I'm giving the stock an underperform rating on my profile in Motley Fool CAPS.  

HP may not be able to make a meaningful comeback, but that doesn't mean you should suffer. There are plenty of investing opportunities in the tech space; in fact, you can find out which stocks are cashing in on the smartphone and tablet revolution now by reading this free report from The Motley Fool: "3 Hidden Winners of the iPhone, iPad, and Android Revolution." 

Fool contributor Tamara Rutter owns shares of Apple and Amazon.com. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing ideas. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Amazon.com and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (9)

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  • Report this Comment On March 22, 2012, at 9:13 PM, InvestWhatWorks wrote:

    It is kind of sad that HP had to make a division-merger into a relatively-big announcement.

  • Report this Comment On March 23, 2012, at 6:28 AM, u1w1e wrote:

    Just place an HP Laptop and an HP Printer next to one another on your working desk. Notice something?

    They look like they were from two different companies. Like they were designed, produced, marketed, sold

    and serviced in completely seperated process streams. Yet they are both commodity devices that HP wants to

    end up right there were you placed them. You bet there are possibilities for cost-savings and synergies when combining the processes around the product life cicle of these devices. HP must combine these business units.

    Now take a second look at your working desk. Does the combination of these devices contribute to make your working desk look like it belongs in an executive office or rather into a home office of a guy combining socks and sandales? Picture the same Apple devices. -> Plenty of opportunities. HP specificly with PCs and laptops has to move to a premium segment.

    HP is the biggest server producer by numbers on this planet. They are building huge server farms for cloud infrastructures. It would be risky to come up with own offerings and then compete with their server customers. They do this with niche offerings like their newly aquired autonomy section which doesn't not create direct competition. So they do have a viable cloud strategy.

    Did you write your article on an IPad? Would be kind of surprising to me. Imagine there are people having even more sophisticated processes then journalist. They may need to create slide shows, spreadsheets, run UIs for specific business software, develop software, write a cv, write a thesis for university. Rather few do this via their IPads. With PCs/Laptops and IPads we do not have the classic horse-car-scenario

  • Report this Comment On March 23, 2012, at 7:44 AM, SirOvidius wrote:

    Everybody betting on the end of HP! Time to buy!

  • Report this Comment On March 23, 2012, at 9:15 PM, NJ7 wrote:

    This move could work well, but perhaps the bigger news is that Meg Whitman is moving executives into cubicles to increase contact with employees and increase morale. I think this is a great move as the HP way has been built on interaction between all levels of employees and lower tier workers have to be sagging under the chaos created by the Hurd/Apotheker sagas.

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