Hewlett-Packard Company (HPQ): This Tech Turnaround Takes Hold

A bright spot in HP’s results was that its converged infrastructure division saw 48% revenue growth year-over-year. Converged infrastructure is a package of servers, data storage, networking equipment, software for infrastructure management to manage those new servers and data centers and software for automation. HP’s enterprise division saw a 10% decline in revenue year-over-year overall, which is disappointing because HP is trying to turn itself into a more software-based company than hardware.

Touchscreens

One possible reason why PC sales are down is consumers find that if they don’t have a touchscreen-enabled device, they are far less likely to like Microsoft Corporation (NASDAQ:MSFT)’s Windows 8. This is an excerpt from a Wall Street Journal article about Best Buy’s survey on Windows 8;

When Best Buy asked recent buyers of Windows 8 PCs how they felt about the operating system, 74% of people who had bought a touchscreen device said they liked Windows 8 “somewhat” or “very much.” About 53% of respondents who bought a conventional Windows 8 PC said they liked the operating system, according to the Best Buy research.

This can be seen as a bad sign for Microsoft as most touch-screen enabled devices are more expensive than traditional models. HP seeks to change that. It recently released several $399- to $599-priced touchscreen-enabled laptops such as the 11.6-inch Pavilion TouchSmart, which costs $399. This is far cheaper than the original $700 to $1,200 price tag for touchscreen laptops. This could help HP stop the revenue declines in the PC business and help Microsoft Corporation (NASDAQ:MSFT) sell more Windows 8 licenses.

Final thoughts

HP’s cost-cutting efforts are working to help the bottom line, no doubt about it. But top-line growth is where HP now really needs to focus on because you can’t cost cut forever. Sooner or later revenue needs to grow for HP to justify the recent run up in the stock price. The CEO sees HP growing in 2014 and its turnaround finalizing, but I wouldn’t count the chickens before they hatch. Revenue got hammered this quarter and missed estimates, the PC market remains in a free fall. Enterprise revenue fell, and HP operates in a very competitive market. If it can start to grow revenue, then I’m bullish; but we will have to wait and see as revenue continues to fall.

Callum Turcan has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft.

The article This Tech Turnaround Takes Hold originally appeared on Fool.com.

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