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The share price of Hewlett-Packard (NYSE:HPQ) surged today, closing at 34.76, up 2.75% after having reached 35.57 earlier in the day. HP’s share price fell from 38.49 on 24 February and has remained below 34.00 since 05 March. It reached its year-to-date and 52-week low of 31.16 on 31 March.
It’s a bit hard to tell exactly which news item has generated the renewed enthusiasm in the company that was at one time (2007-2013) the world’s leading manufacturer of personal computers. Things change rapidly in computing technology, coming now at an pace of development the world has never seen or dreamed of until now.
It’s more likely that waning investor support is beginning a turnaround in response to a combination of news reports.
Quarterly Earnings Report
On a year-on-year basis, the numbers weren’t all that encouraging. But that’s what happens when you only see on piece of the puzzle.
- Net revenue declined by 7% from $27.3 billion to $25.5 billion
- Operation margin (using GAAP) dropped by 1.1 basis points from 6.7% to 5.6%
- Net earnings also did not fare well, dropping by 21% from %1.3 billion t0 $1.0 billion.
Perhaps the key number in the report what the adjusted EPS of 87 cents per share. Average analyst estimates were expecting 86 cents per share. That’s really quite impressive when one considers that the same analysts were expecting revenue at $25.6 billion.
We may be witnessing the beginning of the effect of HP’s corporate transformation.
Dis-synergy Report
HP is preparing to divide itself into two separate, public entities on or before 01 November this year. One company, HP, Inc., will continue the PC and printer business. The other, Hewlett-Packard Enterprise, will specialize in selling its enterprise solutions, including servers, business software and networking devices.
The short-term cost of this exercise is staggering. Actual restructuring costs are expected to approach $2.0 billion. When figuring taxes resulting from the split, the total will almost undoubtedly exceed that amount. The restructuring is such an enormous task that several hundred employees are involved in its planning and execution.
HP is betting that the long-term results will far outweigh the short-term costs.
China Report
HP has entered into an agreement with a subsidiary of Tsinghua Holdings to create a partnership that will immediately become “the leading Chinese provider of technology infrastructure. The new entity will be named H3C and will employ some 8,000. Initial annual revenue is expected to be near $3.1 billion.
Tsinghua Holdings is a fully state-owned, limited liability corporation with a wide range of subsidiaries in the technology industry in China.
It will be interesting to see what happens over the next several weeks and months as the transformation of Hewlett-Packard takes shape all around the world.
