The One Question Hewlett-Packard Must Answer

A reboot is required in mobile devices.

Alex Dumortier
Alex Dumortier, CFA
Feb 19, 2013 at 10:15AM
Markets

Stocks are shooting for eight! On the back of seven consecutive weeks of gains, the markets opened this shortened week slightly higher, with the S&P 500 (SNPINDEX:^GSPC) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) up 0.43% and 0.4%, respectively, as of 10:05 a.m. EST.

Reboot required
Dow component Hewlett-Packard (NYSE:HPQ) will report results for its fiscal first quarter ended in January on Thursday after the market's close. The struggling hardware and services company has rarely missed an opportunity to disappoint investors in the recent past. As the following table shows, current expectations illustrate the depth of HP's predicament:

 

Earnings per Share

Revenue

Analyst estimate

$0.71

$27.8 billion

Implied growth/(decline)

(22.8%)

(7.6%)

Source: S&P Capital IQ.

However, once the earnings data is released, historical numbers will not interest investors (except inasmuch as they say something about the future). Rather, investors will want detailed answers to a number of questions -- one of which stands out:

What is your mobile strategy?
Last week, ReadWrite reported that HP is developing a high-end tablet powered by NVIDIA's latest Tegra 4 mobile chip and running Google's Android operating system. The decision is a symbolic nail in the coffin of WebOS, the mobile operating system developed by Palm. HP acquired Palm for $1.2 billion in 2010 before taking a $1.7 billion charge in the fiscal fourth quarter of 2011 to wind the business down!

While HP recently regained the top spot in the ranking of PC manufacturers, this is a Pyrrhic victory in a world in which consumers are shifting from desktops and laptops to tablets and smartphones. In the latter two product markets, HP has been a no-show since it ceded the market to companies such as Apple and Samsung in 2011. If the company were to launch a new tablet, it would amount to a reboot of its mobile strategy. That might not be enough to revive the company's fortunes, but it could be a first step toward that goal.