HP Earnings Report Hints at Post-Split Landscape

HP earnings on Tuesday marked the last time it will report results as a single company. The computing giant and legendary Silicon Valley business formerly known as Hewlett-Packard Co. is splitting into two separate businesses.hp-earnings
HP Inc. (NYSE: HPQ) will continue to sell the things that you associate with HP, like personal computers and printers. Hewlett Packard Enterprise (NYSE: HPE) will focus on the enterprise market with hardware, software and, perhaps most importantly, services such as cloud services for the enterprise.
In the HP earnings report, the company disclosed a fairly steep 9% decline in revenues and HP earnings fell short of analyst forecasts.
What does this mean for new businesses? In short, not much. It would be easy to look at the weak quarterly numbers and note that it doesn’t look good, but that’s not necessarily true. Hewlett Packard no doubt adopted this aggressive strategy in part because it felt it that both parts of the business could do better as standalones. In other words, past results are not the best predictor of future performance.
Here’s what we do know:

  • Business is competitive. The HP earnings report showed sales at the company’s “personal systems” business were down 14%; desktop unit sales fell 17% and printing desktop sales also fell 17%.
  • The industry is changing dramatically. Just earlier this week I wrote about how many of the best tech stock investments are difficult to understand.  That’s particularly true of the new HPE, which will focus on its own version of enterprise cloud computing services, effectively establishing a new market. Suffice it to say that HP has come a long way from the business selling measuring instruments that was started in a garage.
  • HP is on the offensive. Soon we won’t be able to talk about HP as a single company but for the time being, it is worth noting how bold a move this separation as been. Hewlett Packard Enterprise is effectively staking a claim in an up-and-coming market currently dominated by Amazon.com’s (NYSE: AMZN) Amazon Web Services. It’s definitely an unproven strategy. But the company, which has often been dismissed as too conservative for Silicon Valley, certainly gets points for trying. Like so many of the mergers born of weak company performance, this is a gamble, but probably a gamble the company needed to take.
  • The consumer-focused business, known as HP Inc. going forward, was responsible for much of the overall sales drop shown in the latest quarter. This part of the business will likely continue to face challenges standing out in a competitive crowd of desktop and laptop makers that are all competing against smaller devices.
  • Two HPs, two very different companies. Despite the very similar names, these two businesses are now quite distinct: One focusing on traditional computing products, one chasing the next wave of innovation. The future is uncertain for both of them but it would be wise for investors to consider them separately.

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