HP Moves On after Hurd

Hewlett-Packard Co. had an interesting quarter. CEO Hurd left in early August amid reports of scandal and expense claims and it took the company till Nov. 1 to install a new CEO, Leo Apotheker. The stock has had a roller coaster ride, falling over 10% on news of Hurd’s departure and then slowly getting back to its’ current suppressed levels of around $43 from a high of $54 in April. Although recent financials show positive revenue and growth numbers, the company is not going to have a cake-walk in any of their product lines.

HP has been a market share gainer in storage, servers and networking- high margin businesses. But they are scrambling to expand into more profitable businesses including growth by acquisitions. They are dominant in the PC business but Dell and Acer are gunning for market share. Apple has broken the 10% share of this market, and it’s extremely competitive from a margin standpoint.

So where are they going to find margins? First, take software, a tiny slice of the company’s business. Revenues in software make up only about 3% of total sales. Apotheker comes from SAP so there is logic that this market is where they are looking for opportunity. There’s even talk of a possible merger with SAP. But some analysts believe it would be tough, if not impossible, for HP to catch up with rivals such as Oracle. Interesting anecdote- Hurd ended up at Oracle as Co-President. On the acquisition side recently, HP paid a $1 Billion premium for 3PAR in the summer bidding war against Dell for cloud computing. There has to be some hidden revenue opportunities with such a high price (you’d think).

What about their mobile strategy? It gets rather fuzzy. Earlier this year, HP stated they would be offering both the webOS and Windows Phone 7 tablets. They even said they would offer Android tablets. They bought Palm for $1.2Billion but have been pretty quiet. There are rumours that the Palm Pre is in jeopardy with an upcoming ‘PalmPad’ being released, currently dubbed Mansion.

The display specs of the Mansion are very similar to Dell’s Android-powered Dell Streak, which straddles the smartphone and tablet markets by offering a larger screen size than most traditional phones while offering a smaller screen size than many tablets to make it more portable. There’s a question mark here whether HP will drop the Pre user-friendliness for a bulky tablet/phone.

All in all, it’s been an interesting 3 months. I don’t discount the company being a major force in a number of product lines but it’s not going to be a cake-walk, especially in delivering high margins to shareholders.