The world’s largest personal computer and server maker, Hewlett-Packard Company (HPQ) recently entered into a three-year contract with Avaya Inc. As per this agreement, HP’s product line will incorporate some Avaya business communication products.
The agreement comes as no surprise, because HP has been testing the waters outside its core hardware market for some time now. With the acquisition of 3Com, the company was able to add networking products. However, this would still not position it strongly enough versus the Unified Communications System (“UCS”), launched by Cisco Systems Inc. (CSCO) last year.
With the Avaya deal, HP intends to offer customers an attractive bundle consisting of hardware and software from Avaya (which HP is essentially selling for Avaya) and its own proprietary UCS management services. Interestingly, Microsoft Corp (MSFT) is a software partner for both HP and Cisco’s UCS.
In a separate move, HP acquired Melodeo, a music start-up that owns specialized software called nuTsie in a deal valued at between $30.0 million and $35.0 million. The software has the ability to identify users’ iTunes libraries and stream those numbers from among music stored on the company’s own servers. It is possible that through this software, HP will be successful at offering Palm (PALM) customers (and possibly, the customers purchasing its tablets) the iTunes experience. In any event, this will surely improve the popularity of HP’s consumer hardware and improve its position versus Apple (AAPL).
With a portfolio that spans printing, personal computers (PCs), software, services and information technology (IT) infrastructure, Hewlett Packard is among the world’s largest IT companies, with revenue totaling $114.5 billion in fiscal 2009. The company holds the number one position in the PC business, ahead of Dell Inc. (DELL) and Acer. It is also the largest seller of servers.
This apart, the company has deployed additional sales resources to capture incremental opportunities in the enterprise and mid-markets. HP has a diverse global customer base along with a broad product portfolio that is aligned with growth areas of the market. We believe HPQ will continue to grow its top-line and bottom-line along with new product additions.
Hewlett-Packard’s second quarter EPS exceeded the Zacks Consensus Estimate, and revenues continued on an upward trend, showing substantial improvement. The company expects revenue to remain flat in both the third quarter and fiscal year 2010. The company is through with the acquisition of networking major 3Com, and will now be able to challenge networking leader Cisco Systems Inc.
Although we remain positive on the company’s performance going forward given that demand is improving and the company holds a leadership position in the PC segment, we are not very confident about a substantial improvement in the company’s Printing business, due to availability of cheaper substitutes. Moreover, we believe HP will continue to face significant competition in the core business.
We maintain our Neutral rating on the stock.
Read the full analyst report on “HPQ”
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Read the full analyst report on “CSCO”
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Read the full analyst report on “PALM”
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