Saturday 18 November 2017

HP back to its place in sun with 'Moonshot'

Dr John Lynch

Jokes can often make you their victim. Decades ago I heard the joke: how to you make a small fortune from technology shares? The answer, of course, was: invest a large fortune – and wait.

Somehow this put me off even an exploratory punt on Amazon, Google, Facebook and many, many other Olympian winners in the technology stakes.

Confronted with gigabytes, petabytes, zettabytes and the latest brontobytes, I freeze. I have always regarded Hewlett Packard (HP), however, as a more venerable company and I have never had the technology tremors when it came to a little speculation in this stock.

Regrettably, the company has not been a happy camp in the last few years with falling personal computers (PC) sales, chief executives and chairmen coming and going and acquisition problems.

These comings and goings have not been good for the share price and have proven a challenge to shareholders. The company is not helped by having declining business in PCs and a challenging IT-spending environment. However, things may be about to change for the corporation.

The company had more than just a good reputation in the past – it was an icon of Silicon Valley, founded in a garage in Palo Alto by two engineers, William Hewlett and David Packard, with an initial capital of $538 in 1939.

The company prospered and in 1957 was floated as a public company. It has also been a mini university for hot-shot techies.

Steve Jobs of Apple fame worked for a summer at HP and Steve Woziak, a HP employee, offered the design for the first Apple computer to the company but was refused. He left and set up Apple with Jobs.

The past few years have been like a revolving door for HP's most senior executives. The result has been strategy changes and a lack of focus.

The appointment in 1998 of Carly Fiorino as CEO lasted seven years, but when the share price plummeted in 2005 she resigned and was replaced by Mark Hurd.

During his tenure, the HP chairman had to resign after hiring a private detective to investigate board members. After an embarrassing controversy, Mr Hurd departed in 2010, to be replaced by a German executive, Leo Apotheker.

He changed strategic direction, buying a UK software company Alchemy for $11bn. He also ceased development of hardware products like tablets and smart phones.

The market reacted badly, the share price declined by 40pc and Leo had to walk. He was replaced by Meg Whitman, previously CEO of eBay. Recently, the company has had problems with the Alchemy takeover and announced a $9bn write-off. The result saw the share price drop to a low of $11 (it had topped $40 during the Hurd regime). It has since recovered to $24 and today the company is valued at $41bn.

HP is the provider of products such as PCs, servers, printers and software solutions to individual customers, governments and companies. A significant part of HP's business is the PC market and it is the number one box shifter in the world, with 16pc market share. Total PC sales in 2012 were 350 million units, a decline of 3.5pc. HP accounted for 56 million, followed, by the Chinese company Lenovo with 52 million and Dell with 37 million.

Of concern to HP are iPads and tablets. There is a view that they have changed the landscape for PCs and mark a structural shift in the way people are using computing devices.

Industry sources are of the opinion that they are not cannibalising PC sales but replacing older PCs and that the user is shifting to tablets. Analysts think the cheaper tablets will accelerate the decline in PCs, and that HP is ceding PC market share for profitability.

HP's strategy is to focus on cost reduction, shifting to higher margin products and driving the profitably of its printer business. The company believes, however, it may have come up with a 'game changer'. It has created a new server called 'Moonshot' that it thinks will revolutionise the economies of data centres.

Data centres are an important part of the landscape, given the explosion of traffic due to smart phones and tablets. Moonshot could be just the ticket. The server uses 90pc less energy, 95pc less space and costs 60pc less.

The server is the result of ten years of research and development by HP. It seems odd that the saviour of HP comes from its own internal resources and not some expensive acquisition as occurred in the past.

But, as I mentioned earlier, tech firms are full of mysteries.

Dr John Lynch is a former chairman of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares.

Irish Independent

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