Is Hewlett-Packard’s Struggle Set to Continue?

Source: Thinkstock

Source: Thinkstock

The Hewlett-Packard Company (NYSE:HPQ) was once a household name particularly in the 1990s. In recent years, it has lost this status. This is mainly due to the fact that HP has not evolved as rapidly as many other competitors. To this day, together with its subsidiaries, HP provides products, technologies, software, solutions, and services to individual consumers, small-and medium-sized businesses (SMBs), and large enterprises, including customers in the government, health, and education sectors worldwide. Its personal systems segment offers commercial personal computers (PCs), consumer PCs, workstations, thin clients, tablets, retail point-of-sale systems, calculators and other related accessories, software, support, and services for the commercial and consumer markets.

The company’s printing segment offers consumer and commercial printer hardware, supplies, media, software and Web services, and scanning devices, as well as inkjet and printing solutions, laserjet and enterprise solutions, and graphics solutions. The company also has several IT software and enterprise group segements. What’s more than noticeable is a lack of a segment devoted entirely to mobile technology and tablet development. This is the primary reason why HP reported another so-so quarter.

HP’s second-quarter diluted net earnings per share was $0.66, up from $0.55 in the prior-year period and within its previously provided outlook of $0.62 to $0.66. Second-quarter non-GAAP diluted net earnings per share was $0.88, up from $0.87 in the prior-year period and within its previously provided outlook of $0.85 to $0.89. Second-quarter non-GAAP net earnings and non-GAAP diluted net earnings per share exclude after-tax costs of $418 million and $0.22 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges, and acquisition related charges. Second-quarter net revenue of $27.3 billion was down 1 percent from the prior-year period and flat on a constant currency basis.

After announcing its restructuring plan in May 2012, HP had estimated that it would eliminate 34,000 jobs. The company has struggled to revamp itself in the post-PC era. Chief executive Meg Whitman has tried pushing it further into services and growing areas such as providing the servers used in cloud-computing, or the remote storage of data. Commercial sales of PCs and software revenue proved a help to the company throughout the quarter. Revenue from enterprise PC sales rose 12 percent, while software licensing revenue rose 8 percent.The company also said it would eliminate between 11,000 and 16,000 more positions than it had originally planned as part of its effort to restructure its business.

Looking ahead the outlook for HP is uncertain. While the stock has more than doubled off of its lows from 2012, the company is under immense pressure. While the company is increasing its earnings per share year-over-year, the cutting of more jobs is a key indicator that the company continues to struggle mightily in the face of severe competition. This is evidenced by the fact that revenues declined year over year. This early release led to the stock dropping about 4 percent. At this time, I rate the stock as a hold until a few more quarters can reveal whether the company has a bleak or a strong quarter.