Why Is Hewlett-Packard Soaring Today?

Hewlett-Packard (NYSE: HPQ  ) is showing signs of life again. Shares of the technology giant jumped more than 5.8% in early trading and are up nearly 3% as of 1:45 p.m. EDT, making it the strongest Dow Jones (DJINDICES: ^DJI  ) performer of the day by a wide margin.

The stock trades at a firm 52-week high and has easily outpaced its Dow peers. In fact, HP shares have now doubled in value in 2013, while the average Dow stock has gained 20%. It's a downright miraculous bounce off the long-term lows that were set during the winter. Today's jump is a heavy layer of icing on the cake.

So why is HP soaring today in particular?

Well, there's one piece of good news, though it's sadly lacking in specifics. HP just settled a long-running price-fixing lawsuit with Chinese and Taiwanese computer-display makers. The suit alleged that companies like Tatung and Chunghwa had swindled more than $1 billion out of HP when notebooks and desktops were hot.

But that's hardly the whole story. Sure, HP may have settled for a large sum of monetary damages -- but we don't have that kind of detail yet. The suit may have been settled for peanuts, or maybe even nothing at all. It would seem a gamble to assume that HP walked away significantly richer.

But there's another potentially explosive tidbit in the news today. File this one under "rumors," but it's an interesting one.

Taiwanese tech site DigiTimes says HP is putting together a brand-new smartphone. This rumor comes from discussions with Taiwanese supply-chain players, which are fighting for a place in Hewlett-Packard's new handsets. This follows earlier comments by Asia-based HP executive Yam Su Yin, who said HP definitely wants to get back in the smartphone game but didn't offer any clues on a timetable.

That nugget of pre-confirmation is what makes this more than just a silly rumor. DigiTimes is notoriously hit-and-miss, breaking a few stories early but hardly with the regularity of The Wall Street Journal's or Bloomberg's anonymous sources.

Smartphones could be a game-changer for HP if the company can pull it off. HP hasn't looked at ultra-mobile computing since shutting down the Palm division in 2011, instead choosing to stick with laptops and other traditional systems.

That being said, the deck remains stacked against HP in the smartphone market. Apple (NASDAQ: AAPL  ) and Samsung have emerged as the players to beat, largely splitting the sector's entire sales and profits between them.

If HP plans to bring an Android-based handset to market in 2013, it comes at the same time as platform guru Google's (NASDAQ: GOOGL  ) own attempt to get some value out of its $12 billion Motorola acquisition. That's a huge investment -- and a money-losing one so far. The Motorola X handset has a lot to prove right now.

And on the low end, a handful of struggling incumbents are facing off with new entries from open-source software houses Ubuntu and Mozilla.

Whether HP decides to attack the premium handset segment or the less glamorous but high-volume budget side, neither market will yield easily to a new competitor -- no, not even to one with HP's well-known brand name.

Apple is already adjusting to a lower-margin smartphone future, and it will fight to the death to protect its high-end territory. Samsung is less concerned with wide margins, as the company addresses every segment of the market. The Korean company fought tooth and nail to become the world's largest handset-maker, and it may be an even tougher nut to crack than Cupertino.

The proof is in the pudding, they say. It looks like HP is coming up with a new mobile recipe here, but it seems premature to invest in the company based on assumptions and speculation. Yes, HP needs a mobile strategy in order to stay relevant. No, we haven't seen enough to assume that the company will be a winner in this space anytime soon.

In other words, today's nearly peak gain of nearly 6% doesn't look sustainable. As for the massive year-to-date climb, it will stick around only if CEO Meg Whitman's ambitious but unfocused turnaround plans work out as expected. That's another gamble -- not a solid investment thesis. And so my thumbs-down CAPScall on HP stands.

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Comments from our Foolish Readers

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  • Report this Comment On August 02, 2013, at 3:50 PM, PropioFurbo wrote:

    Another loser call from Anders

  • Report this Comment On August 02, 2013, at 8:04 PM, zigazaga wrote:

    In what way is it a loser call!? In intelligent debate one is expected to substantiate one's statements. Suggest Propio google "the internet argument pyramid".

    HPQ was my first ever short and I did well out of it. Was very surprised that it went up again and now hoping not to miss the next round of big investors dumping it (21/08?). The level of intellect shown by the HPQueens in most forums makes me wonder if there has been a lot of selling of its shares to especially inarticulate and abusive kind of investors... Would misguided patriotism be playing a part? Wall Street manipulation? Whitman's feminine charms?

  • Report this Comment On August 02, 2013, at 10:28 PM, fuchsia10 wrote:

    I bought HP as part of my interest in 3D printing companies - this just adds to the pot!

  • Report this Comment On August 02, 2013, at 11:19 PM, deepak81sh wrote:

    HP has 2 businesses - hardware and services. its a well known fact that its loosing ground in hardware businesses due to its failure to keep up with newer products in market. what is interesting to see is that HP is not doing that good in software services also since long time. may be having a beautiful CEO helps in keeping stocks upwards in wall street. specially seeing yahoo also doing great in wall street without any significant product launch by yahoo.

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