HP poised for growth in 2012

Hewlett-Packard emerges through internal and external storms to report slight revenue gains in 2011. Analyst believes that by going back to basics and increase in customer spend, IT vendor will achieve long-term growth.
Written by Liau Yun Qing, Contributor

Hewlett-Packard (HP) has managed to navigate through management upheavals and external market challenges to perform "better than expected" despite underperforming in areas such as sales for its fourth quarter results. The IT vendor is also expected to do well in 2012 as customer spend picks up, an analyst stated.

In a statement released on Monday, Beau Skonieczny, research analyst for computing practice at Technology Business Research (TBR) noted that despite the "plethora of challenges stemming from internal and external developments", the IT vendor still managed to grow its revenue by 3 percent sequentially.

That said, its sales figures fell 3.5 percent from the same time last year as consumer demand continued to weaken, particularly in mature markets such as EMEA (Europe, Middle East and Africa), he pointed out. Commercial sales also fell 2 percent as many small businesses held back on spending due to the uncertain global economy.

Even as it looks to go back to basics and regain lost business momentum, HP is keen to downplay expectations. Meg Whitman, the recently appointed president and CEO of HP, said in the company's quarterly financial report: "HP has a great opportunity to build on our strong hardware, software and services franchises with leading market positions, customer relationships and intellectual property."

"We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution."

Company CFO Cathie Lesjak added that HP will remain "cautious" heading into the new year, but it is "focused on delivering our earnings outlook and driving shareholder value".

Skonieczny predicted that ongoing economic uncertainty and external factors, such as the recent floods in Thailand, will continue to reduce HP's revenues and margins in the near term.

"However, the company is poised to capitalize on long-term profit and revenue expansion as spending among commercial customers improves in 2012," he said.

No more mega-acqusitions
The analyst also said HP will "shy away" from making big acquisitions in the next fiscal year following its buying spree in 2011, with the latest being the US$10.3 billion deal for Autonomy.

He thinks the company will focus on more organic investments in building out its portfolio, brand and global presence via "aggressive investment" in research and development and sales capabilities. 

"TBR believes the strategic shift will help position HP to more profitably drive growth in the long term by developing, marketing and selling its own solutions that hold higher margins and have the potential to be leveraged across HP's broad portfolio to maximize packaging and cross-sales opportunities," Skonieczny said.

HP to be one-stop shop once more
Fellow TBR analysts, Jillian Mirandi and Jack Narcotta, noted in a separate research paper released on Monday that while Whitman has made it clear that HP will not "transform into a software-centric company", it will continue to invest in its software division in line with what her predecessor, Leo Apothekar, had done.

This is because the software business has the highest profit margins and it will also need to pay off the Autonomy acquisition, they stated.

In summary, the analysts said that in the coming year, HP will be aiming to "reset, rebuild, reestablish and reclaim its position as a leader across all markets and business segments".

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