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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.

"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA

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