Hewlett-Packard Company - SWOT Analysis

Page 1

2011 Factiva, Inc. All rights reserved.

Hewlett-Packard Company - SWOT Analysis 3,165 words 29 June 2011 Datamonitor Company Profiles DATMON English 2011 Datamonitor Ltd. All rights reserved Hewlett-Packard (HP or "the company") provides technology products, software, solutions and services to a broad range of customers including individuals, small and medium size businesses (SMBs) and large enterprises. Its portfolio includes multi-vendor customer services, enterprise information technology infrastructure, personal computing and other access devices, and imaging and printing-related products and services. Strong market position in various market segments provides economies of scale for the company, besides increasing its chance of winning customers. However, intense competition will adversely affect the revenues and profitability of the company in long term.

Strengths * Strong market position * Successful inorganic growth * Significant brand recognition Detailed * Strong market position * Hewlett-Packard (HP) has a robust market position in most of the product segments it serves. The company leads the global PC market in terms of shipments. HP managed to take market leadership from Dell in the global PC market in 2006 and sustain the position through 2010. In 2010, the company had about 18% market share of the global PC market followed by Dell (13%), Acer (12%), and Lenovo (10%). HP shipped approximately 64 million PCs in 2010. In FY2010, HP's industry standard server business continued to lead the industry in terms of units shipped and revenue. HP retained its leadership position in x86 server segment by accounting for nearly 39% of the total global revenue for 2010 in the x86 server segment. The company's revenue from the x86 servers grew 34.0% in the current year compared to 2009, retaining its leadership position in this segment for over 59 straight quarters. The company also has a leadership position in server blades, the fastest growing segment of the market. * HP also has leading market position in the global printers market. It ships more than one million printers per week. The company was the second largest player in the storage market behind EMC in 2010. It also became one of the major IT services companies in the world with the acquisition of EDS in 2008. Also, the company serves more than one billion customers in more than 170 countries across six continents. * Strong market position in various market segments provides economies of scale for the company, besides increasing its chance of winning customers. * Successful inorganic growth

Page 2 of 8

2011 Factiva, Inc. All rights reserved.

* Over the years, HP has been successful in growing through large deals. The company's major mergers and acquisitions in recent past include Compaq Computer in 2002, Mercury Interactive in 2006 and Electronic Data Systems (EDS) in 2008. These large acquisitions have allowed the company to gain scale and expand its capabilities in related areas. * The merger with Compaq allowed HP's revenue to scale up from $48.8 billion to over $87 billion, and made it one of the leading players in the IT market. Further, the company's acquisition of Mercury Interactive at a value of approximately $4.5 billion strengthened its portfolio of IT management software and services. Moreover, the company's acquisition of EDS in a transaction valued at $13.9 billion made HP a leading player in IT services market. The acquisition, by value, was the largest in the IT services sector and the second largest in the technology industry, following HP's acquisition of Compaq in 2002. * In addition, in April 2010, HP acquired 3Com, a leading provider of networking switching, routing and security solutions, at a value of approximately $2.7 billion. The acquisition of 3Com will expand the company's Ethernet switching offerings, adds routing solutions and also strengthens its position in China. The company acquired Palm, a provider of smartphones powered by the Palm webOS mobile operating system, for approximately $1.2 billion, in July 2010. The acquisition will enable HP to tap the growing smartphone and connected mobile device markets. * In September 2010, HP acquired Fortify Software, a privately held software security assurance company and 3PAR, a leading global provider of utility storage, for approximately $2.35 billion. The acquisition of 3PAR expands HP's storage portfolio into enterprise-class public and private cloud computing environments. In the following month, the company acquired ArcSight, a leading security and compliance management company, for approximately $1.5 billion. Further, in February 2011, the company signed a definitive agreement to acquire Vertica, a privately held, real-time analytics platform company. The acquisition of Vertica will enhance HP capabilities for information optimization, adding real-time business analytics for large and complex sets of data in physical, virtual and cloud environments. * The company's successful inorganic growth allows it to increase its competitiveness both through scale and expanded portfolio of offerings. This creates value for both investors and customers of the company in long term. * Significant brand recognition * The company has significant brand recognition. The HP brand is recognized by various rating and ranking agencies. For instance, HP was ranked 10 in the list of top 100 Best Global Brands 2010 ranking by Interbrand, an international brand consultancy. HP brand was valued at $26,867 million in 2010, an increase of 12% over 2009. Further, in the Fortune 500 ranking, HP was ranked in the tenth position during 2010. * Significant brand recognition provides a competitive advantage to the company and allows it to penetrate markets for new offerings with ease. Weaknesses * Lack of significant presence in various market segments Detailed * Lack of significant presence in various market segments

Page 3 of 8

2011 Factiva, Inc. All rights reserved.

* HP lacks significant presence in various segments of the IT market when compared to its major competitors. For instance, the company's portfolio of offerings lack significant software product or management consulting services when compared to its major competitors including IBM, Accenture and EMC, among others. Moreover, the company depends upon other vendors to complement its offerings. * Further, increasing number of IT companies are establishing management consulting divisions in order to provide a more comprehensive and integrated range of services. While, both IBM and Accenture have strong management consulting practices, Indian IT companies such as Infosys Technologies have also added management consulting practice to their technology services in order provide better breadth and depth of services. However, HP has been continuing to enhance its portfolio to overcome this weakness. For example, the acquisition of EDS was an effort to strengthen its IT services offering. * The company is also way behind some of its competitors, including Apple, Samsung Electronics, and Acer, among others, in the tablet PC market. Although, the company's acquisition of Palm in July 2010 enabled its entry into high growing smartphone market, it still has a long way to go to make its impact in the market. In the smart phone market, its operating system faces stiff competition from Google's Android platform, Apple's iOS, and RIM's BlackBerry platform. It is also forecast that Google's Android and Chrome OS will capture 36% of the smartphones and tablet-style devices by 2015, followed by Apple's iOS with 35%. Further, in February 2011 Nokia partnered with Microsoft to make Microsoft Windows Phone 7 its high end smartphone operating system. * The company's lack of significant presence in various areas may affect its competitiveness and makes it dependent on others for providing complementary offerings. Opportunities * Growth of tablet PC market * Entry into smartphones market * Increasing demand for cloud computing services * Focus on healthcare sector Detailed * Growth of tablet PC market * The global tablet PC market is expected to grow strongly in the coming years. According to the industry sources, the global tablet shipments reached about 14 million in 2010 and are forecast to register a compounded annual growth rate (CAGR) of above 51% during the period 2010-14. The growth is expected to be driven by the demand from the US and Asia Pacific regions. In 2010, the market was led by the North American region with approximately 35% market share. By 2014, Asia Pacific region including China is expected to lead the tablet PC market. * In February 2011, HP launched the HP TouchPad, a 9.7-inch tablet PC that runs on webOS 3.0. The company plans to make available this product in the coming months. The company's increased focus on the tablet PC segment will enable it to benefit from the growing market.

Page 4 of 8

2011 Factiva, Inc. All rights reserved.

* Entry into smartphones market * HP launched two smartphones, Veer and Pre3, running HP WebOS in February 2011. It plans to make available these products in the coming months. HP plans to project the Pre 3 as a business oriented smartphone and the Veer will have a 2.6inch screen and an 800MHz Snapdragon chip with 8GB of storage. The company entered the smartphone market with the acquisition of Palm, a provider of smartphones powered by the Palm WebOS mobile operating system, in July 2010. The launch of new smartphones with an updated version of webOS will enable the company to effectively compete with other players in the market, including Apple and Google. * Further, according to the industry sources, the worldwide smartphones market is forecast to record strong growth in coming years. The worldwide smartphones shipments, which accounted for about 15% of worldwide mobile phones shipments in 2009, are forecast to account for over 35% of shipments in 2012. The smart phone shipments reached approximately 275 million in 2010, an increase of above 50% compared to 2009. Further, it is also forecast that the smartphone shipments will increase by about 25% in 2011. Also, the smartphones are expected to account for more than half of total mobile phones shipments in the US by 2012. * Growth of smart phone market presents an opportunity to the company to enhance its revenues in the coming years. * Increasing demand for cloud computing services * The worldwide demand for cloud computing services is forecast to record strong growth in coming years. Cloud computing is a computing infrastructure model, which enables delivery of software as a service (SaaS). This reduces the upfront royalty or licensing payments, investment in hardware and other operating expenses. As result of its benefits, the global cloud computing services market is forecast to record a growth of about 16% in 2010, reaching $68 billion in 2010, compared to $58.6 billion in 2009. Further, the market is expected to reach $148.5 billion in 2014, growing at a CAGR of 20%. With the growth of cloud computing services, the enterprises are expected to gain about $110 billion from SaaS, platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) during the next five years. * The company has been focusing on the cloud computing area in recent times. In July 2010, HP and Microsoft partnered to work together on a Microsoft Windows Azure platform appliance that will enable large enterprise customers to adopt cloud-based applications. In August 2010, the company launched HP CloudStart, a solution for deploying an open and flexible private cloud environment within 30 days. In September 2010, HP introduced integrated private cloud solutions customized for Oracle applications that significantly shorten and simplify the deployment process. In December 2010, SHI International selected HP Networking solutions as the network infrastructure for its new IaaS cloud center. * In January 2011, HP launched a suite of new products and services that enable businesses and governments to leverage the power of the cloud while ensuring they meet required levels of security, performance and availability. The company and VMware collaborated to develop and market next-generation intrusion prevention system (IPS) solutions designed and optimized for VMware vSpherebased virtual and cloud environments. * The company's increasing presence in the expanding cloud computing domain will provide it with the steady revenues and increasing customer base. * Focus on healthcare sector

Page 5 of 8

2011 Factiva, Inc. All rights reserved.

* HP has been focusing on providing healthcare solutions in recent times. In January 2010, the company and McKesson collaborated to work on electronic health record (EHR) adoption at independent physician practices. In October 2010, Quest Diagnostics' health information technology subsidiary MedPlus and HP partnered to facilitate and simplify EHR adoption for physician practices across the US. Approximately one third of US physicians and many of the country's leading hospitals, health plans, and regional health exchanges rely on health care information solutions developed by Quest Diagnostics to document, analyze and monitor diagnostic, prescription and clinical data to provide better patient care. The combination of Quest's EHR solution with HP's hardware and services will create a platform for SMB physician practices to transition to an EHR system. In November 2010, the company formed an alliance with the Clinton Health Access Initiative (CHAI) to speed up early infant diagnosis of HIV in Kenya. * The company and African social enterprise mPedigree Network introduced a service that targets counterfeit pharmaceuticals by enabling people in Nigeria and Ghana to check the authenticity of their malaria medication in December 2010. With the new service, patients taking a range of medication manufactured by May & Baker Nigeria and the KAMA Group of Ghana can send a free text message to get an instant response as to whether the tablets or syrup bottles they received are genuine. The system from HP and mPedigree assigns a code that is revealed by scratching off a coating on the drugs' packaging. This code can be text messaged by the consumer or medical professional to a free SMS number to verify the authenticity of the drug. The service, which was recently endorsed by the West African Health Organization, is expected to be available for other medications and in more countries in the near future. * The company's solutions targeting healthcare sector will enable it to increase its revenues in the coming years. Threats * Intense competition * Legal proceedings * Dependence on third-party suppliers Detailed * Intense competition * HP faces intense competition in all its business segments. It competes in terms of price, quality, brand, technology, reputation, distribution and range of products, among other factors. The company faces stiff competition in the ESS segment and its competitors range from broad solution providers such as IBM to more focused competitors such as EMC and NetApp in storage and Dell in industry standard servers. HP's service businesses including HP Enterprise Services and Technology Services compete in IT support services, consulting and integration, infrastructure technology outsourcing, business process outsourcing and application services. Its competitors include IBM Global Services, CSC, systems integration firms such as Accenture, and offshore companies such as Fujitsu and India-based companies, including Wipro, Infosys Technologies, and Tata Consultancy Services. * The company's enterprise IT management software faces competition from IBM, CA, BMC Software, and others. HP's information management and business intelligence solutions compete with products from companies, including Symantec, IBM, EMC, CA, and Teradata. Its communications and media solutions compete

Page 6 of 8

2011 Factiva, Inc. All rights reserved.

with products from IBM and various other competitors. In branded personal computers market, the company's competitors include Dell, Acer, ASUSTeK Computer, Apple, Lenovo Group and Toshiba. In particular regions, HP also experiences competition from local companies and from generically-branded or "white box" manufacturers. * Further, the company's imaging and printing group's key competitors include Canon, Lexmark International, Xerox, Seiko Epson, Samsung Electronics, and Brother Industries. In addition, independent suppliers offer refill and remanufactured alternatives for the company's supplies which, may be offered at lower prices and put pressure on HP's supplies sales and margins. In addition, other companies also have developed and marketed new compatible cartridges for HP's laser and inkjet products, particularly in jurisdictions outside of the US where adequate intellectual property protection may not exist. In the company's financing business, its competitors are captive financing companies, mainly IBM Global Financing, as well as banks and financial institutions. Further, for its smartphones, HP faces intense competition from Apple, RIM, and Nokia. * Intense competition will adversely affect the revenues and profitability of the company in long term. * Legal proceedings * The company has been involved in various legal disputes for the past few years. HP is involved in several lawsuits in which the plaintiffs are seeking unpaid overtime compensation and other damages based on allegations that various employees of EDS or HP have been misclassified as exempt employees under the Fair Labor Standards Act and/or in violation of the California Labor Code or other state laws. In addition, during 2010, Hewlett-Packard India Sales (HPI), a subsidiary of HP, and certain current and former HP employees have received show cause notices from the India Directorate of Revenue Intelligence (DRI) alleging underpayment of certain customs duties. The company intends to contest each of the show cause notices through the judicial process. * Further, the German Public Prosecutor's Office (German PPO) has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett-Packard ISE in Germany, a former subsidiary of HP, and the Chief Public Prosecutor's Office of the Russian Federation. The Russian GPO deal spanned the years 2001 to 2006 and was for the delivery and installation of an IT network. The US Department of Justice and the SEC have also been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (FCPA). Under the FCPA, a person or an entity may be subject to fines, civil penalties of up to $500,000 per violation and equitable remedies. * Any unfavorable resolution of above litigations will affect the company's image and affects its investors' confidence. * Dependence on third-party suppliers * HP depends on third-party suppliers for components, products and services. The company's ability to serve its customer at a competitive price depends on its suppliers' ability to deliver sufficient quantities of quality components, products and services at reasonable prices in time to meet schedules. The company's wide variety of systems, products and services require it to source from the large number of suppliers and contract manufacturers that are dispersed across the globe, and the long lead times that are required to manufacture, assemble and deliver certain components and products. There could be other supplier problems

Page 7 of 8

2011 Factiva, Inc. All rights reserved.

that the company may face including component shortages, excess supply, risks related to the terms of contracts with suppliers, risks associated with contingent workers, and risks related to its relationships with single source suppliers. * For instance, replacing a single source supplier may delay production of some products as replacement suppliers initially may be subject to capacity constraints or other output limitations. For some components, such as customized components and some of the processors that HP obtains from Intel, alternative sources may not exist or those alternative sources may be unable to produce the quantities of those components necessary to satisfy the company's production requirements. In addition, the company sometimes purchases components from single source suppliers under short-term agreements that contain favorable pricing and other terms, but that may be unilaterally modified or terminated by the supplier with limited notice and with little or no penalty. * Dependence on third-party suppliers exposes the company to risk associated with its ability to manage suppliers properly. The company's inability to manage suppliers properly may affect its operating performance and brand value. Document DATMON0020110706e76t001th

Page 8 of 8

2011 Factiva, Inc. All rights reserved.