The largest PC maker Hewlett-Packard Company (HPQ) recently announced its expansion plans for China. The tech major announced a series of new initiatives which may be expected to strengthen its presence in China. Moreover, the investment is expected to deliver a seamless and secure solution for the connected world.
The company is planning to make investments in cloud computing, systems research and development, technology infrastructure transformation projects and social media platforms, which will ultimately strengthen its presence in China’s largest cities and accelerate its growth in the Chinese market. The growth plan is inline with China’s industrial priorities and is befitting with HP’s strategic growth plans for the region.
In China, the company’s main focus would be in cloud computing and social media. The company didn’t provide much detail about the size of the investment, but the Chief Executive Officer Leo Apotheker, is bullish on the region. The CEO is also of the opinion that China’s vibrant economy, with high growth rate in social and mobile connectivity, and strong commitment to innovation, which presents tremendous opportunities for HP.
HP will cash in on China’s Internet population (the largest in the world today), and that fact that its need for rapid infrastructure growth requires flexible, fast and seamless technology to support bandwidth-hungry applications. This has resulted in increasing the need for mobility, security and manageability of the network. Moreover, the acquisition of 3Com which is already paying rich dividends to the company.
The company has a business plan in place wherein, it has opened its first HP Cloud Executive Briefing Center in Tianjin to provide customers in China and the region with hands-on experience in operating HP-led cloud environments.
Moreover, HP will also tap the strong engineering talent in Beijing, expand its presence and investments in Shanghai with additional manufacturing facilities, and will also move ahead keeping pace with China’s 12th five-year plan, enhancing its presence across major cities, including Shanghai, Tianjin and Chongqing, to tackle complex infrastructure, energy and healthcare issues. We believe this strategic growth plan will have a positive impact on the Asian business of the company.
The company’s growth story remains intact given its track record of acquisitions, new deal wins and deeper penetration in existing markets. HP recently signed a deal to acquire Printelligent, a closely held provider of managed print services (MPS) for an undisclosed sum.
This acquisition is a part of the company’s strategy to optimize the traditional technology environment that its customers depend on and deliver a connected world between the customer and the enterprise.
It seems that the company is undergoing significant structural changes given its longer lead time and services selling, as well as the lengthy revenue recognition cycle. We are expecting a change in the process during fiscal 2012.
Hewlett-Packard reigns supreme in the computing world with its strong business model and leadership position in both PC and Server segments. The company is also well positioned to challenge Cisco Systems Inc. in the networking space and gain significant market share. Given its strong market position, HP should benefit substantially from the revival in the U.S., as well as growing Asian demand.
Despite the company’s market position and compelling product line, we remain cautious about future growth, especially as competition from other big technology players, such as Cisco Systems (CSCO), Apple (AAPL), Acer, Microsoft Corp (MSFT), and Dell Inc. (DELL) heats up. The increasing competition may be expected to impact pricing in the market, moderating profitability to some extent.
Currently, Hewlett Packard has a Zacks #3 Rank, implying a short-term Hold rating.
