The world’s largest personal computer and server manufacturer Hewlett-Packard Company (HPQ) purchased the video sharing site Motionbox, through its HP Snapfish arm. HP Snapfish is currently involved in the provision of online photo storage services. The unit is trying to make a foray into video sharing services through the acquisition of Motionbox. This seems to be an attractive deal.

The tech major will be integrating Motionbox’s platform, which helps users upload, edit and share their personal videos into its own Snapfish Home Video service.

Motionbox has been seeing increasing web traffic of late, and the site claims that it has around 2.8 million online registered members.

This could well be true, given the fact that the video sharing site benefited substantially when AOL closed down its indigenous video sharing services, because users transferred their files to Motionbox. Moreover, in October, Motionbox acquired one of its competitors, Viddyou, thus adding Viddyou customers. We believe this acquisition will provide HP access to Motionbox’s huge customer base.

HP has always grown through strategic acquisitions. The fiscal 2007 acquisitions of Mercury Interactive Corporation and Opsware helped HP become the leading IT management software and services company and a leader in data center automation. Other acquisitions added transaction monitoring, applications security testing and data center automation capabilities to the company’s BTO portfolio, thereby increasing BTO revenues by 24.6% in fiscal 2008.

During fiscal 2008, HP acquired nine companies, the largest of which was Electronic Data Systems (EDS), for approximately $13.9 billion. The company’s TSG segment shifted its outsourcing services operations and a part of its consulting and integration activities to EDS. We believe the EDS acquisition provides the services portion of the TSG business a stronger foothold to compete against its largest rival, IBM. Moreover, Services have contributed the largest chunk of HP’s revenues after its acquisition of EDS.

In November 2009, the company declared that it will be acquiring networking major, 3Com. The company is through with this $2.7 billion acquisition, which has enabled HP to challenge networking leader Cisco Systems (CSCO).

The company’s second quarter EPS exceeded the Zacks Consensus Estimate, with revenues continuing on an upward trend. The company expects revenues to remain stable in the third quarter and during fiscal year 2010.

Although we remain positive about the company’s performance going forward given that demand is improving and the company holds a leadership position in the PC segment, we believe competition from other big technology companies, such as Cisco, Apple Inc (AAPL), Microsoft Corp (MSFT), Google Inc. (GOOG), as well as smaller Asian players continues to intensify.

Thus, we maintain our Neutral rating on the stock, with a short term Zacks rank#2.

Zacks Investment Research

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