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Uncertainty is a major factor dragging down HP's stock

Hewlett-Packard Comp. (HPQ) was in for a bad quarter, according to analyst predictions.  Reporting its results after the bell on Monday, it painted a picture of drooping revenue that, while disappointing, did contain some promising signs.

I. Earnings Shows Signs of Hope, But WebOS Freeze Hits HP Hard

Revenue fell almost exactly where the experts predicted.  The company reported Q4 2011 revenue of $32.122B USD (GAAP adjusted), just a hair beneath the $32.135B USD analyst consensus.  Likewise the annual reported GAAP revenue of $127.245B USD for fiscal 2011 was almost identical to the $127.257B USD analysts expected.

The lone positive for HP was its non-GAAP net earnings (profit), which were reported at $1.17 USD/share, better than the $1.1416 USD/share analysts were expecting.  Likewise non-GAAP annual earnings for fiscal 2011 were at $4.88 USD/share, better than the $4.85 USD/share consensus.

Both revenue and earnings were down versus 2010 on an annual basis and Q3 2010 on a quarterly basis.

In summary, HP's revenue fell short of the analyst predictions, but its earnings did better than predicted.

Of course, the revenue picture for HP is still pretty bleak when you consider the GAAP earnings, which factor in the discounts and other costs of freezing webOS development and killing the webOS product lineup.  HP estimates the webOS wind-down cost it $3.3B USD.  With those costs included HP was barely profitable, with $0.2B USD in GAAP net earnings, versus $2.5B USD last year.

webOS family
HP decision to kill webOS sunk earnings. [Image Source: All About webOS]

Despite the better than expected earnings, HP stock has been down between 3 and 4 percent today.

II. The TouchPad Unexpectedly Becomes the #2 Best-Selling Tablet

HP somewhat offset the webOS losses thanks to the strong demand for its TouchPads, which were sold at a $99 USD price (or lower) during an August fire sale clearance.  In total 1.2 million units were moved -- rough 17 percent of total U.S. tablet sales for the quarter, according to the NPD Group.  That makes the TouchPad the second best-selling tablet behind Apple, Inc.'s (AAPL) iPad.  (Samsung Electronics Comp., Ltd. (), the top Android tablet maker was close behind with 16 percent of the market.)

HP TouchPad
HP's TouchPad was the #2 best-selling tablet in the U.S. for Q3 2011.
[Image Source: Anandtech]

Many felt that webOS had the best multi-tasking support in the industry and many other features (Synergy, email app, free lifetime 50 GB access to, notification system, drag and drop file loading, wireless printing to HP printers, and Preware, to name a few) that were industry leading.  

Fans are actively trying to port Google, Inc.'s (GOOG) Android OS to the TouchPad, much to HP's chagrin.

III. Uncertainty Weighs on HP, From All Fronts

While HP may be leaving the expense of ditching webOS in the rear view mirror, significant concerns remain.  With its third executive in just over the year [1][2] -- ex-eBay, Inc. (EBAY) chief Meg Whitman -- at the helm, leadership and direction are clearly issues for the company.

If you count iPads as "personal computers" as some analysts have started to, Apple hauled in 15 percent of global sales, versus 16 percent for HP, according to Canalys.  A surging Lenovo Group, Ltd. (HKG:0992) looms, as well, with 12 percent of global sales.  

The IDC Group, who does their account slightly differently -- not including iPads as PCs -- placed HP's market share 18.1 percent and Lenovo in second place at 13.7 percent (Apple did not make the list).  But the IDC indicated that Lenovo rose 36.1 percent in sales, versus only 5.3 percent for HP.  HP's growth is just a bit above the market average of 3.1 percent for the quarter, but if falls far short of the dynamic growth we're witnessing from Lenovo.

Lenovo is growing nearly 7 times as fast as HP in PC sales. [Image Source: CleverBoxes]

Thus while HP remains on top of the pack of personal computer makers, in terms of global sales, there's a very real possibility it could lose its lead within the next year.

HP is in the PC market for the long haul.  CEO Meg Whitman recently announced that the company was ditching plans to spin off the PC business, a move which resulted, in part, in a shareholder lawsuit.

Further complicating the situation for HP is ongoing uncertainty about webOS.  Becoming the second biggest maker of tablets was an unexpected honor for the company, despite it coming in an odd form.  But HP appears to be still leaning towards a sale of webOS.

It's important to exercise skepticism as multiple sources have erroneously reported dates for an announcement [1][2].  But the latest reports point to a December window for a final decision -- sale or otherwise.  They indicate that a sale would hinge on HP being able to continue to use webOS in its printer line.  If HP cannot find a buyer it may opt to keep the struggling mobile operating system, possibly plotting a relaunch.

Sources: HP, NPD Group, Financial Times: Forecast

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Pretty Sad
By elmikethemike on 11/22/2011 4:15:44 PM , Rating: 4
That next to no Android Tablets were sold in 2011.

RE: Pretty Sad
By chris2618 on 11/22/2011 5:09:36 PM , Rating: 2
I think its basically to do most people not being able to justify buying a tablet which can be priced similar to a good standard PC.

In my particular situation i can't think of when i need one. At home i have my laptop in my room and use it in the lounge if want to watch TV, I drive to University so obvious can't use it then, when at University a computer is never more than 30 seconds walk away and i haven't found a good way to take notes with a computer yet so don't need it in lectures.

Actually i can think of a time when i need one. When amazon has the Black friday deals on.

RE: Pretty Sad
By Fracture on 11/23/2011 11:30:43 AM , Rating: 2
My kingdom for a popular tablet with an infrared receiver/transmitter. I would love to be able to use a open source platform to control my tv, garage door, etc.

RE: Pretty Sad
By TakinYourPoints on 11/24/2011 6:23:26 AM , Rating: 2
Or you can do those now very easily on iOS. "Open" or "closed" platform is kind of beside the point when the closed platform has real developer support on it. Same reason I use Windows, closed OS with the best dev support.

RE: Pretty Sad
By TakinYourPoints on 11/24/2011 6:30:01 AM , Rating: 2
I think this will change with Amazon in the game. The problem with most Android tablets is no solid central authority. People don't want generic OS on generic hardware, they want an appliance that is vertically integrated and has services tied into it.

Amazon will deal with content delivery, app sales, be completely accountable for OS updates (something that's been a huge strike against Android in the past), and cloud services. This is something that Samsung, Motorola, etc, cannot do as they don't have control over the complete content/hardware/software stack in the same way that Amazon or Apple do.

On top of everything the Amazon Fire UI is very nice. I reckon we'll see a 10" tablet from them in a year or by 2013. IMHO they are the only real competition for Apple at this point, everything else is probably going to fail.

RE: Pretty Sad
By Mitch101 on 11/27/2011 6:55:41 PM , Rating: 2
I agree Apple seems worried about the Kindle Fire, Several people I know with iPads per-ordered the kindle fire. Apple has lost its grip on some of its fans without an iPad 3 especially when faced with a $200 rival. Black Friday delivered a lot of good 10" tablets as low as $230-$250 range that Im sure people thought about instead of an iPad.

Apple manufacturing in China workers on strike demanding more money which will cut into the profit line.

Android taking away market share from Apple on the Phone front and if Microsoft gets its act together soon enough. I Phone 4s might have gotten out the gate quick but its only a revised version of the iPhone 4 not worth of a 5.

Apple TV is going nowhere.
Apple computer sales have slowed as well I even read they declined.
iPod no one really talks about them.

Finally the stock has dropped from its high of 420+ into the 360's within 2 months but no article on that here.

Really Apple had no hot item for X-Mas this year. iPhone 4s is no iPhone 5. They would have slapped a 5 on it people would have sold kidneys.

A 10" Kindle Fire for $250.00 might be game over for the iPads. Dont forget the Microsoft tablets will be coming and many surveys show 40+ percent of people want one from Microsoft.

Sloppy Reporting!
By rmcq on 11/23/2011 10:08:34 PM , Rating: 2
In total 1.2 million units were moved -- rough 17 percent of total U.S. tablet sales for the quarter

No, 1.2 million non-iPad tablets were sold TOTAL.

Roughly 17% of NON-iPAD tablets sold were HP TouchPads, which is NOWHERE NEAR 17% of "total U.S. tablet sales".

Oh, and it wasn't a quarter, it was the first 10 months of 2011.

Do you guys even read the facts before you report on them?

RE: Sloppy Reporting!
By TakinYourPoints on 11/24/2011 6:20:32 AM , Rating: 2
Standard DT

Meaningless drivel
By Tony Swash on 11/24/2011 5:16:26 AM , Rating: 1
This report and the absurd discussion of it in this article is drivel. How can you make any measurements of the tablet market without including the iPad? It would be like measuring the performance of Apple in the PC market without including any Windows PCs - 'oooh look Apple has a 95% share of the PC market!' Drivel.

Assuming that Apple sold 10 million iPads in the US in the period covered by this report (reasonable given Apple sold a total of 25 million iPads in total in that period) then you get the following markets shares:

Hewlett Packard----204,000-----------1.8
ASUS ----------------120,000-----------1.1

RE: Meaningless drivel
By Chaser on 11/28/2011 1:09:55 PM , Rating: 2
As I have stated before unlike Apple buyers Android phone owners don't equate to potential Android tablet buyers the same way.

Android phones are a very popular alternative to Apple phones. But Android phone buyers are more tech literate and more cautious about the cost and utlity gain from any tablet purchase.

Whereas a high amount of iPhone owners will buy an iPad so they can have their next "tech darling" Apple gizmo to impress at airports and on airplanes, Android buyers are less likely to sheeple buy a tablet.

But the Kindle Fire has the potential to crash Apple's tablet country club. With its very affordable pricing, instant baseline functionality with books and media, tightly integrated shopping capabilities over Amazon's vast retail enterprise, and its "app store" (hilarious) The Fire is going to let the riff raff into the party so to speak at an undeniably prudent and afforable price.

If I were sitting on an airplane and the smug Apple iSnob quietly pulled out their iPad after take off I'd be laughing pretty hard on the inside after my Fire came out next. :)

Fans are actively trying to port...
By DNAgent on 11/22/2011 8:35:13 PM , Rating: 2
Cyanogenmod has done more than try to port Android...I'm running their 1.2 alpha version now and it is faster than WebOS ever was, even with overclocked cores!

Two paths.
By drycrust3 on 11/23/2011 5:06:07 AM , Rating: 2
Thus while HP remains on top of the pack of personal computer makers, in terms of global sales, there's a very real possibility it could lose its lead within the next year.

Forecasts predict that within the next 4 years there will be several hundred million internet users who use a mobile device to access the internet on a regular basis. Of course, while that is an upside for of hundreds of millions of units for mobile device manufacturers, the downside is that demand for the static desktop computers will diminish. At first glance this could have been a serious problem for HP, so the moves the directors made looks sensible, but the is another way to view the move to mobile units.
HP had initially made more or less the right moves so that when their PC side was shipping less units, their mobile side should have been selling more. To be effective they needed to have a range of smartphones and tablets that were competitive in terms of price and performance. I can't see why, with a bit of care, most of their current subcontractors couldn't have switched over to producing the new inventory needed for those products while meeting the price and performance expectations, which would have given HP better diversity than they now have.
Since Microsoft is one of their subcontractors, it is understandable they would have been interested in supplying the OS for the smartphones and tablets, especially if my memory of there being criticism of HP's WebOS operating system and the initial high price one would pay for one of their units is correct. However, the situation at Nokia with WP7 and the success of Samsung with Android should also have been motivation for either Microsoft to hurry up with WP7 or for HP to release some Android based units, even if just on a trial basis.
Considering the number of patents HP hold, they could probably have got away with running Android on them without to much comment from Apple.
As it is, HP seem to have lost the plot. They made the change from test instruments to computers without too much fuss. They made the change from just computers to include printers as well without too much fuss. They made the change from just desktop computers to include laptop and server computers without too much fuss. HP staff even managed the to get smartphones and tablets alongside their existing line up. So all that was left was to improve the smartphones and tablets so they are really competitive for the price paid, but no, that was just somehow to difficult to handle!

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