If This Report Is Right, Hewlett-Packard Company’s Struggles Will Continue

A recent report by Gartner shed some light on the future of the PC industry, as well as the potential for the tablet and smartphone industry. If the research is correct, Hewlett-Packard (NYSE: HPQ  ) has a tough road ahead.

30% of revenue, and this head fake won't last
While the future of Hewlett-Packard might be in enterprise sales or software, today's company still gets 30% of its revenue from PC sales. Some believe that HP is finding its footing in PC sales with a 4% revenue increase in the last quarter.

But according to Gartner, sales of traditional PCs will decline by just more than 6% during 2014. Even if you add hybrids and other convertibles, the overall decline will still exceed 1%. Other companies like Apple (NASDAQ: AAPL  ) and Microsoft (NASDAQ: MSFT  ) will be affected by the PC decline but in different ways.

Apple's Mac lineup has been surprisingly resilient to the overall PC decline, and the company actually reported a 17% increase in unit sales in the last three months. Apple's strong device sales seem to be lifting the sale of iMacs and MacBooks as well.

Where Microsoft is concerned, the company's Windows franchise is important, but not as much as some may believe. In fact, the company got more than half of its consumer sales from devices and consumer hardware division. Microsoft also witnessed strong sales from its commercial franchise.

The point is, while Apple has its strong device sales to lift the Mac division, and Microsoft is growing its commercial and devices division, HP lacks either of these competitive advantages.

HP can do better, but for some reason chooses not to
Another piece of Gartner's research suggest that tablet sales in 2014 will grow by more than 38%, followed by a near 29% increase in 2015. Hewlett-Packard has made some progress with its tablet lineup, but it is sorely lacking compared to its peers.

One issue is HP has bet big on Windows tablets even though these devices command a very small percentage of the market compared to iOS and Android. With the introduction of Microsoft Office for the iPad, the line between the usability of a Windows, Android, or iOS tablet is blurring.

As an example, HP's ElitePad 1000 for $739 offers similar specs to the Surface 2 Pro from Microsoft for $899. However, for the equivalent consumer-accessible storage, a customer might choose a $599 32-GB iPad Air. Even if that consumer spends another $100 on a Bluetooth attached keyboard, at $699, the individual gets the same storage, a lighter tablet, and a keyboard for productivity.

When it comes to Android tablets, HP seems to produce the product only because its competition does. HP's best Slate10 HD for $299 offers a heavier weight and a lower-resolution screen than competing offerings from Amazon, Samsung, or ASUS at similar or cheaper prices.

How is HP not in this business?
One of the more surprising statistics from Gartner's research is the number of smartphones that are expected to ship in the next few years. Between computers, tablets, ultra-mobile PCs, and mobile phones, more than 76% of total mobile devices will be smartphones in 2014. In 2015, that number is expected to fall to only 74%.

With around 1.9 billion mobile phones expected to ship in each of next two years, how can Hewlett-Packard avoid this business? While Apple ships more than 50 million iPhones in a quarter, and Microsoft takes over the Nokia handset business, HP's involvement in the mobile phone business is exactly nothing.

Though the Palm disaster must have scarred HP's management, the company can't continue to ignore this business. Millions of individuals and businesspeople are using their smartphones to conduct transactions, grow their sales, and stay in touch with customers and friends. If HP expects to return to real growth, mobile phones will have to be part of this strategy.

The bottom line is that 30% of HP's revenue is tied to the slowing PC business, its tablet business is less than impressive, and the company isn't involved in the smartphone business. As you can see, if Gartner's predictions are correct, HP's struggles will continue.

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  • Report this Comment On April 17, 2014, at 11:50 AM, TMFGemHunter wrote:

    Chad: There's no point in growing if you're not making any money in your growth markets. Look at HTC, LG, and Motorola. (Or even Nokia!) None of these companies are successful in actually making money selling tablets and smartphones. Apple and Samsung are making all of the money. So why would HP want to be another also-ran selling Android smartphones or tablets? (BTW, HP actually is developing a smartphone for developing markets, but I don't think it will get that much emphasis.)

    PCs may represent 30% of HP's revenue, but the PC business contributes less than 10% of HP's profit. Also, since it's a declining business, it represents a smaller proportion of HP's value. Overall, I'd estimate the PC business is worth $2-$3 a share out of HP's $32 share price. It's almost immaterial.

    Adam

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