Hewlett-Packard (NYSE: HPQ ) has impressed investors so far this year with gains of more than 21%. The technology giant's turnaround is progressing nicely as it was able to post estimate-beating second-quarter results last month. However, a sluggish outlook tempered results. Despite this, HP's shares have continued rising as investors seem to have faith in the company's long-term prospects.
HP is making a number of moves in the cloud space. It is partnering with the likes of SAP (NYSE: SAP ) and Workday (NYSE: WDAY ) to push growth. Let's take a detailed look at where HP is heading and why its turnaround should continue.
Innovation and partnerships to drive growth
HP's turnaround strategy starts with innovation, as it is the most important element for any company to progress. As a result of its focus on innovation, HP has developed various new products that will allow it to deliver cutting-edge service to customers. The company has launched HP Helion, which is a more advanced version of its existing cloud software. Helion allows the integration of public, private, managed cloud, and traditional IT environments in an open and secure platform.
The company says that it has received positive response for this software from customers as it addresses integration challenges. HP is looking remove other integration challenges in the cloud space as well, and it has partnered with Workday for this purpose.
HP is using Workday's cloud-based HR software, covering its 300,000-strong workforce. It is now trying to monetize Workday's service by helping other corporations integrate the cloud-based HR platform into their existing information technology structure. HP spent 15 months integrating Workday into its own platform, gaining valuable insights during the implementation phase. It had to amalgamate data from 400 different applications across different functions such as payroll and finance.
HP is now looking to use this expertise by going with Workday to other companies. It believes that since Workday's platform is cloud-based, it should see strong demand as it allows for extensive prototyping, something that non-cloud platforms do not allow.
To augment its server business, HP has also entered into a joint venture with Foxconn. This partnership will lead to the creation of a new line of cloud-optimized servers to specifically target service providers.
The SAP partnership
For big data management, the company has launched the HP Shark system for SAP's HANA platform. This new converged system is designed to deliver higher levels of performance and availability for in-memory computing at up to twice the speed of other solutions. The solution is finding solid adoption as HP reported sequential growth in its HANA offerings during the second quarter.
The partnership with SAP can be a fruitful one for HP in the long run as the HANA platform is growing at a robust pace. SAP has over 900 value-added resellers and original equipment manufacturer partners that are working with its cloud software.
More than 1,200 independent software vendors are building applications on HANA. SAP expects that its addressable market will grow to $230 billion by 2015, and then to $350 billion by 2020. HP should also benefit from the growth in SAP's cloud platform going forward by virtue of their partnership.
Some more positives
HP is also making strides in networking virtualization. It recently introduced OpenNFV, which is a comprehensive network function virtualization program. According to management, this new program will provide a big boost to telecom operators and enable them to launch new services faster with less expense and lower risk. Thus, OpenNFV will provide HP with an opportunity to tap the telecommunications industry.
Moreover, HP expects its enterprise business to get back on track. Enterprise services revenue was down 7% in the previous quarter as compared to last year. However, management expects this to improve in the second half.
The bottom line
Management's focus on driving innovation, simplifying the organizational structure to improve decision making, and reducing costs should help the company do well. Moreover, HP's focus on the cloud should unlock new revenue opportunities for the company going forward. HP is making the right moves to sustain its turnaround, and looks like a good pick at a trailing P/E ratio of just 12.
Editor's Note: The initial article incorrectly references HP's new software program as Helium instead of Helion. This version has been corrected.
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