(HPQ) Hewlett-Packard Forays into Patient Care Business

The leading PC manufacturer in the world, Hewlett-Packard Company (HPQ) recently announced that it is venturing into the patient care business. HP has won a contract from the Runnymede Healthcare Centre in Canada, wherein the latter will deploy the HP Converged Infrastructure. The solution is expected to facilitate patient care and reduce IT administration time and costs.

Runnymade Healthcare was earlier suffering from considerable network downtime with an outdated data infrastructure. This affected the patient care service of the client and resulted in delays when the hospital staff accessed applications supporting patient care information and led to deterioration of services.

HP has critically addressed the problem by implementing HP LeftHand Storage and HP ProLiant Servers at its new facility. The Patient care segment is expected to grow across the globe as companies like Computer Sciences Corporation (CSC), Siemens and GE Healthcare are expected to seize the opportunity in this field. Diversification has always been the strategy for HP despite the fact that it is ranked the leader in the PC market and this is no exception.

Moreover, with certain businesses of the company facing stiff competition from other players, alternate business ventures have emerged as the order of the day to counter the revenue decline. The company is facing issues in its core segments, that is PCs and Printers.

Competition in the printing space is heating up given the continuous roll out of quality printing devices at competitive prices by other technology giants including Samsung, Canon (CAJ), Epson and Lexmark (LXK). This has resulted in a price war in the printing space, which in turn is affecting the margin of the company.

Several factors are affecting the business of the company and as expected, Hewlett-Packard reported mediocre first quarter results, with revenue and earnings declining substantially on a year-over-year basis. However, reported earnings surpassed our estimate.

The company’s margins declined owing to the exchange rate fluctuations and greater mix of low-margin products along with competitive pricing for high-margin products. Further, the company’s second quarter guidance of 90-91 cents per share was lower than our estimate of 95 cents at the time. Hence, the overall results of the company suffered despite the earnings beat.

We believe that CEO Meg Whitman has a tough job on her hands, especially as business growth of the company remains challenged due to the worsening external environment, including soft demand from Europe. Moreover, the company is implementing several strategies to improve volume in 2012 in order to drive revenues.

The company has a Zacks #3 Rank, implying a short-term Hold rating.
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