Hewlett-Packard Company (HPQ) recently acquired Melodeo, which operates as nuTsie, the online music service, in a deal valued between $30.0 million to $35.0 million.
With this acquisition, HP is expected to move into the Ivy League of the music business and will be able to challenge veteran Apple Inc. (AAPL). The software produced by Melodeo enables a person to scan their iTune library and play their favorite numbers.
Hewlett-Packard, the world’s leading server and personal computer manufacturer, has already entered the digital music business in partnership with mobile music startup company Omnifone Ltd. The companies have launched a subscription music service business in Europe.
As per a new report published by the representative body of the worldwide recording industry, the International Federation of the Phonographic Industry (IFPI), global digital music trade revenues reached US$4.2 billion in 2009, up 12.0% on a year-over-year basis. The IFPI also stated that more than a quarter of all revenues for the recorded music industry worldwide are now coming from digital channels.
Although online music piracy is a threat, governments all over are gradually implementing strict regulations for Internet service providers. France, South Korea and Taiwan adopted new laws to address the crisis in 2009, while other governments including the UK and New Zealand have proposed new laws for adoption in 2010. This is good news for music companies, as it will definitely reduce revenue loss and add to their bottom line.
The company is diversifying its business in every possible direction and expanding from servers, personal computers, business computing, printing and now music. Though slow, the company is surely moving towards becoming an end-to-end IT provider with the adoption of all upcoming technologies.
HP has always grown through strategic acquisitions. During fiscal 2008, the company acquired nine companies, the largest of which was Electronic Data Systems (EDS) for approximately $13.9 billion. The company’s Technology Solutions Group (TSG) segment shifted its outsourcing services operations and a part of its consulting and integration activities to EDS. We believe the EDS acquisition will give the services portion of the TSG business a stronger foothold to compete against its largest rival, IBM (IBM).
Hewlett-Packard’s second quarter EPS exceeded the Zacks Consensus Estimate, and revenues enjoyed an upward trend, showing substantial improvement. The company expects revenue to remain in line in the third quarter, and during the 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. (CSCO).
Although we remain positive about the company’s performance going forward based on improvement in demand and the leadership position it enjoys in the PC segment, we are not very confident about the company’s Printing business as cheaper substitutes are present in the market. We maintain our Neutral rating on the stock.
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