Thursday, April 3, 2014

Seeking Alpha Article - Hewlett-Packard's Turnaround: The Devil's Advocate

Seeking Alpha posted an article this morning titled "Hewlett-Packard's Turnaround: The Devil's Advocate", explaining why Meg Whitman's projected turnaround is "still some way off".

This is the same sentiment we saw in the Yahoo finance article on HP a few weeks ago.

The article takes note of some issues I've discussed already, namely that HP revenues are down in all market segments and any future market share stands a good chance of being eaten up by other major players (Lenovo, Cisco) due to poor executive leadership.

HP's advancement relies heavily on having innovative leaders at the helm who can see and create the opportunities for the company to compete for market share and lead in a market segment - Whitman isn't it.

Some clips from the article:

"The turnaround is still some way off

While HP is still generating a healthy cash flow, there is concern over its revenue streams and shrinking margins in PC and other hardware sales, as confirmed in the negative growth in the Personal Systems, Enterprise Group and Enterprise Services business segments. This is unlikely to change in the near future due to decreasing margins and increasing competition.

Worldwide revenues for hardware sales are decreasing, as can be seen in the following table, which shows how all server vendors are affected. Computer hardware margins are razor-thin and expected to decrease further as the IT hardware industry becomes more and more commoditized. Furthermore, Lenovo entering the server market poses a threat to HP's server sales. If Lenovo's performance with PCs is repeated in the server arena, HP's revenue is in danger of falling further."

"HP's share price is being propped high by stock buybacks and by high expectations for its 3D printing venture, but it does not hide the obvious long-term adverse impact of one particular item in the income statement, the unimpressive revenue figures.In my opinion, a PE of around 11 is entirely justified, but I fear there is more to go on the downward trend before the expected turnaround. This is a company that is shrinking, not expanding, and has to do more shrinking for some time to come."

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