Hewlett-Packard Company (HPQ) Can’t Turn Around Forever: BAML

Updated on

Hewlett-Packard Company (NYSE:HPQ) has been in a tailspin for too long. The company, has been disappointed investors and consumers alike with its often schizophrenic attempts to save itself. Analysts have given the firm the benefit of the doubt, asserting that it needed some turnaround time. For how long can the company turn around before it’s just moving in circles?

Hewlett-Packard Company (HPQ) Can't Turn Around Forever: BAML

The firm held its analyst meeting earlier this week, and the firm’s pessimistic view on 2013 caused shares to stumble. Times have gotten so desperate that some have even suggested HP blow its remaining cash on a merger with Research In Motion Limited (NASDAQ:RIMM). That would be a signal of end times indeed.

One of the oldest computer companies in the United States, Hewlett-Packard Company (NYSE:HPQ), one would imagine, should have been well ahead of the pack on innovation and implementation of new technologies. It appears, and investors are beginning to learn this, that in the technology sector, inertia is one of the deadliest sins.

HP has been slow to react to changes in the consumer electronics market. So slow, in fact, that the firm could not even be considered a consumer electronics company, despite the fact that PC manufacturers appear to be going the way of the bookstore.

A report from Merril Lynch, the investments wing of Bank Of America Corp (NYSE:BAC), remains slightly upbeat on the company’s future, however. The report, which was published in the wake of the analyst meeting that sent investors running, asserts a neutral view on the company. The report suggests a twelve month target price of $16.50.

The neutral view is based on the company’s strong balance sheet, and faith in the firm’s management. It does concede that previous, more optimistic, reports underestimated the scope of the recovery that was needed at the firm. This has been going on for years.

Hewlett-Packard Company (NYSE:HPQ) cannot be allowed to recover forever, but it is fair to give the company some time to figure out its strategy and realign itself to its new structure.

The company is currently facilitating a merger between its PC and printer businesses, a move that has been coming for a long time, and one that should alleviate some cost burden over the coming years. That is not enough to save the company.

Nor is the resultant PC and Printer business likely to perform the role of messiah. Tablet and smart phone purchases have begun cannibalizing PC sales, and the trend is expected to accelerate in future. Hewlett-Packard Company (NYSE:HPQ) are selling a product that is simply not in demand any longer.

There is sure to be continued demand for PCs in the coming decade, and HP is a trusted brand that will have a base line of customers, particularly in the enterprise sector. This is not what investors want to hear.

The biggest disappointment from the analysts’ meeting with the firm’s executives was from the Services sector. International Business Machines Corp. (NYSE:IBM) got out of the hardware market in order to concentrate on Services, and by all accounts the higher margin business is doing wonders at the company.

Hewlett-Packard Company (NYSE:HPQ) has not been so fortunate. The services sector of the company, lauded as its savior, has had no revenue growth and a huge decline in margins, according to the BAC report. There appears to be nowhere to turn for the firm, and yet it is still turning around.

Hewlett-Packard has lost its way. The company still has strong fundamentals and some of the finest talent in its favor, but the current regime of turning around has not been kind to it. Investors are not just looking for a restructuring in the business. HP is a technology company. What investors need to see is successful innovation.

The market should end the narrative that HP is turning around, at least until we know what direction it’s heading when it stops. If things remain the way they are now, the company wil continue to circle until, eventually, it slips down the drain.

Leave a Comment