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HP recovery strategies analysed

HP recovery strategies analysed

May 5, 2015

hplogonewGuruFocus contributor Sumit Khatri says the OEM can “find a way out of its slump” by reducing its workforce and investing in 3D printing.

He also analysed HP’s investments in cloud technology as a way forward in the article. Khatri started with an assessment of HP’s “revenue and earnings”, detailing that the corporation “delivered total revenue of $26.8 billion (€24 billion) [in 2014], which is down five percent year-over-year or down two percent in currency”. However, the OEM has “enhanced profitability” year-over-year, while R&D investments continue to rise.

He also mentioned the “restructuring plan” that The Recycler reported in March 2015 is due to take place in November 2015. Market analysts anticipate that other OEMs, such as Dell and Lenovo, will exploit the split and try and take customers away from HP.

Other revenue statistics mentioned by the writer include “personal systems revenue”, which rose three percent, with commercial revenue up one percent in constant currency. Meanwhile, non-GAAP operating profit and gross margin increased 0.3 points and 0.6 points year-over-year to 8.8 percent and 23.4 percent respectively, while gross margin was down 1.2 points quarter-over-quarter.

The writer then pointed to staff cutbacks HP has successfully made, with “nearly 2,800 employees” leaving the company in 1Q2015, “making the overall reduction to date approximately 44,000 people”. HP will have lost a total of 55,000 people by the end of 2015, having come up with the target in October 2014, adding 5,000 cutbacks to a previous top figure of 50,000. This latter figure was announced four months earlier in May 2014, when cutbacks of between 11,000 and 16,000 workers were added to a previous target of 34,000.

Khatri’s second factor to consider is that “HP is tipped to enter the 3D printing market soon”. Building on its “huge R&D expense”, the writer reckons that “it can easily take the market by storm” and even challenge market leaders such as Stratasys. He cited the case of HP’s Multi Jet Fusion 3D printer, which is due for release in late 2016, as the OEM claims the device is “10 times speedier than today’s driving expulsion based and specific laser sintering advancements”, with the device aimed at “modern and expert markets”.

To clarify HP’s favourable financial position in entering the market, the contributor wrote: “HP additionally has more than three times as much money on its accounting report than the 3D printing industry produced in overall revenue in 2014.” Market research from Canalys recently estimated that the 3D printing industry has topped revenues of $3.3 billion (€2.9 billion). Khatri said that the market is expected to grow 31 percent per annum until 2020, eventually topping $21 billion (€18 billion) in yearly revenue.

A May 2014 report from Lux Research predicted it would reach $12 billion (€10 billion) by 2025. In contrast, major player 3D Systems last month reported a “slowdown amid industrial customers” which may have been part of a “broader slowdown as HP wades into the market”.

The third and final HP project Khatri thinks may turn around the company is its “overhaul in the public cloud […] as HP proclaimed it is leaving the public cloud business”. According to the writer, despite buying out the open source solution Eucalyptus, which connects OpenStack clouds to Amazon web services, “the company has never performed well in public cloud”. HP said last month that its public Helion cloud project had struggled to compete in the already saturated market, despite investing $1 billion of its R&D budget on the project specifically “to ward off competition”. The writer similarly feels that HP “never gained grip in the business, having proclaimed its Helion cloud late”.

In conclusion, Khatri said that HP “has taken reasonable measures to overturn its deficits”. He points to the strong US dollar as a “trouble” for the company, but counters that “it [HP] is cutting back on expenses and entering the fast growing 3D printing industry. The company has a vast R&D budget and can easily replace the market leaders.

“Investors may be worried that 3D printing stocks could have much to lose once HP’s 3D printer goes available to be purchased. What isn’t clear, however, is the degree to which HP’s passageway could hurt ‘made’ 3D printing organisations”.

Categories : Around the Industry

Tags : 3D printing Cloud HP

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