Daniel Flores
11/17/2014
Hewlett Packard Analysis
1
Table of Contents
Executive Summary……………………………………………………………………
(Pg. 3)
Financial Analysis……………………………………………………………………..
(Pg. 4-9)
Internal Analysis……………………………………………………………………… (Pg. 10-11)
External Analysis……………………………………………………………………… (Pg. 12-15)
Strategies……………………………………………………………………………… (Pg. 16-17)
Value Chain…………………………………………………………………………… (Pg. 18-24)
Recommendations…………………………………………………………………..… (Pg. 25-26)
Citation………………………………………………………………………………...
2
(Pg. 27)
Executive Summary
This is an analysis for Hewlett Packard also known as HP. It contains a thorough financial
analysis, internal analysis, external analysis, value chain analysis, and recommendations to the
company. It is recommended for HP to decrease its inventory in order to increase cash flow which
can be reinvested to grow the company more rapidly. There are three ways to reduce the inventory:
Spend more in marketing, reduce the price of the product, and forecast sales more accurately
.
3
Financial Analysis
This is Hewlett Packard’s income statement for the years 2014 and 2013:
For the Fiscal Period Ending
Currency
Revenue
Finance Div. Revenue
Other Revenue
Total Revenue
Cost Of Goods Sold
Interest Expense - Finance
Division
12 months
Oct-31-2013
LTM
12 months
Jul-31-2014
USD
USD
111,851.0
111,768.0
-0.07%
447.0
-
411.0
-
-8.76%
112,298.0
112,179.0
-0.11%
85,793.0
85,347.0
-0.52%
312.0
285.0
% change
-9.47%
Gross Profit
26,193.0
26,547.0
1.33%
Other Operating Exp., Total
17,775.0
17,731.0
-0.25%
Operating Income
8,418.0
8,816.0
4.51%
Net Interest Exp.
(278.0)
(216.0)
-28.70%
4.0
4.0
0.00%
176.0
(97.0)
281.44%
(523.0)
(276.0)
-89.49%
7,797.0
8,231.0
5.27%
(990.0)
(1,386.0)
28.57%
(22.0)
(11.0)
-
-
-
-
Asset Writedown
Other Unusual Items
(275.0)
-
(219.0)
-
-25.57%
EBT Incl. Unusual Items
6,510.0
6,615.0
1.59%
Income Tax Expense
1,397.0
1,518.0
7.97%
Earnings from Cont. Ops.
5,113.0
5,097.0
-0.31%
Net Income
5,113.0
5,097.0
-0.31%
Income/(Loss) from Affiliates
Currency Exchange Gains (Loss)
Other Non-Operating Inc. (Exp.)
EBT Excl. Unusual Items
Restructuring Charges
Merger & Related Restruct.
Charges
-100.00%
Impairment of Goodwill
Gain (Loss) On Sale Of Invest.
4
As shown on the income statement above, the revenue decreased from the year 2013 to
2014. The change is 7% less from the previous year. This means that the company sold less units
this current year. Although this income statement only represents two years, this has been a trend
since 2011. COGS, also known as cost of goods sold has decreased by 0.52%. This means that the
expenses have decreased which this is a positive change since the expenses decreased. Overall, the
net income decreased by .31%. Also, some other reasons that demonstrate why the company’s net
income is decreasing is the increase of other non-operating expenses, and the increase of taxes
compared to the previous year.
This is a snapshot of the income statement for HP, Dell, and IBM. Dell and IBM are the
strongest competitors to HP since they sell similar products. This chart shows the Revenue, Cost
of Goods Sold, and net income for the three companies.
Incom e Statem ent
HP
%
Dell
%
IBM
%
Revenue
112,179
100%
56,623
100%
97,499
100%
Cost of Good Sold
85,793.0
76%
45,153
80%
48,673
50%
Net income
5,113.0
4.56%
1,339
2.36%
12,723
13%
Based on this consolidated income statement, IBM is the strongest company out of the
three. IBM has the highest net income at about 13 million, therefore it is the company with the
most profitability. Even though, the company is bringing less revenue than HP, IBM’s cost of
goods sold is roughly half in comparison to HP. This is the reason why IBM’s net income is
greater.
Dell is another company competing for market share in the technological industry. Dell is
a weaker competitor in comparison to IBM. It has roughly $56 million in revenue while HP brings
in $112 million for the same period of time. Dell’s cost of goods sold is roughly half in comparison
5
to HP. However, its revenue is very close to their COGS, which is not beneficial to Dell since the
ideal income statement would be high revenue and low cost of goods sold.
The following table is the balance sheet of Hewlett Packard, Dell, and IBM:
Selected Balance Sheet Item s
HP
% of assets
Dell
% of assets
IBM
% of assets
Assets
Total Cash and ST Investment
14,474
14.03%
11,828
25.79%
9,570
8.05%
Total Receivables
14,198
13.76%
6,591
14.37%
10,591
8.91%
6,249
6.06%
1,468
3.20%
2,356
1.98%
49,287
47.77%
26,866
58.57%
47,163
39.66%
Inventory
Total Current Assets
Net Property, P&E
11,434
11.08%
2,212
4.82%
11,068
9.31%
103,170
100.00%
45,871
100.00%
118,911
100.00%
Accounts Payable
15,141
14.68%
12,051
26.27%
5,855
4.92%
Accrued EXP
15,901
15.41%
3,161
6.89%
9,469
7.96%
Total Current Liabilities
42,476
41.17%
22,756
49.61%
42,306
35.58%
LT Debt
17,128
16.60%
3,680
8.02%
32,828
27.61%
Total Liabilites
74,268
71.99%
35,090
76.50%
104,516
87.89%
Total Assets
Liabilities
Common Stock
19
0.02%
12,698
27.68%
52,446
44.11%
Retained Earnings
27,984
27.12%
30,381
66.23%
133,403
112.19%
Total Equity
28,902
28.01%
10,781
23.50%
14,395
12.11%
103,170
100.00%
45,871
100.00%
118,911
100.00%
Total Liabilities and Equity
Investors tend to analyze the balance sheet of the company closely. To be more specific,
cash, inventory, and accounts receivable are the sections that are mainly looked at. Cash is the
most liquid asset that a company can have. As shown on the balance sheet above, HP has the most
cash available. This is extremely attractive to investors since they want to be able to recoup their
investment, it also shows opportunities to reinvest, and growth in the future.
When looking at the account receivables of the companies, HP also has the highest amount
out all the competitors. Account receivables is money owed to the company. This seems attractive
at the beginning, however it is money that is not guaranteed. Therefore HP need to collect the
money quicker as shown by the competition.
6
Inventory is key for investors. HP is the company with the highest inventory. This means
that the company is holding its products for a longer time. Ideally, investors would like to see the
inventory move quicker to generate more revenue. High inventory generally means the company
is struggling to turn over inventory and make sales. It also brings significant costs such as storage
expenses. However, HP keeps its inventory high since the suppliers have a high bargaining power
and could potentially hurt the company if the relationship ended.
One of the numbers that stands out negatively when comparing the companies on the
balance sheet is retained on earnings. HP has the lowest retained on earnings out of all the
competitors even though the company had the highest amount of cash. This means that the
company did not reinvest as much and is not spending as much as other companies to grow the
company.
The following table demonstrates financial ratios for Hewlett Packard:
Ratio
HP
Current Ratio
Dell
IBM
1.2x
1.2x
1.1x
.7x
.9x
.9x
Debt to Equity
68.60%
63.20%
317.50%
Debt to Total Asset
40.70%
38.70%
76%
13.3X
29.3x
20.1x
1.1x
1.3x
.8x
Quick Ratio
Inventory turnover
Total Asset Turnover
Gross Profit Margin
23.70%
20.30%
49%
ROA
5.30%
2.70%
10.50%
ROE
18.90%
13%
93.30%
To further analyze the companies’ financial analysis, the table above provides various
ratios which help understand these companies more in depth. As discussed previously, the lower
the inventory in a balance sheet, the more attractive a company is to an investor. As shown on the
7
table, HP has the lowest inventory turnover while Dell has the highest inventory turnover. This
means that HP has to wait a longer period of time to collect money from its products.
Current ratio is the results of dividing current assets and current liabilities. It is also known
as liquidity ratio. The higher the ratio, the better for the company. This particular ratio gives a
sense of efficiency of a company’s ability to turn its product into cash. HP’s current ratio is tied
for the first place with Dell. This is favorable since it indicates that HP is capable of paying its
obligations.
Quick ratio is an indicator of a company’s short term liquidity; does not include inventory.
This ratio can measure the ability of the company to meet its short term-obligations. HP has the
lowest quick ratio since it has the highest inventory which is not included in this particular ratio.
It means that the company will have a difficult time covering its short term-obligations.
The return on assets percentage shows how profitable a company is relative to its total
assets. This is a good indicator for investors to see how efficient the management is when using
its assets to generate earnings. The highest ROA is from IBM which means that the company is
being more efficient than the rest. Also, this was shown on the income statement since IBM has
the highest net income. However, HP is actually in second place on top of Dell in terms of
profitability.
Return on equity is net income over shareholder’s equity. This is essential for investors
since it reveals how much profit a company generates with the money that shareholders invest for
every $1.00. HP has an 18.90% ROE, Dell has 13%, and IBM is 93.3%. This means that HP needs
to increase this percentage tremendously in order to compete against IBM.
8
Health of the company:
Based on the information discussed, HP has tons of room for improvement. The company’s
net income and revenue has been declining in the past years therefore the company does not look
very stable on the eyes of the investor; not healthy. However, HP implemented a strategy to split
the company a month ago which is expected to turn the number around.
9
Internal Analysis
When doing an internal analysis it is essential to identify the strengths and weaknesses that
the company brings to the competitive environment. One of the strengths of the company is the
location of the company. According to the HP website, the company operates in 180 countries.
Meaning that Customer Service is more efficient since customers will get faster service and also
reduce shipping expenses. Also, HP is known for its innovation. According to Forbes Magazine,
“HP has been working on 3D printing since 2007 and is taking a long term approach to the market.”
This means that HP is getting ready to be the leading company when it comes to 3D printing and
the company will improve its profitability indicators. Another strength that the company has is the
brand recognition. HP is a widely known company and its advantage when comparing products
with less known brands. At last, based on a SWOT analysis found in the Gale Business data base,
HP has a diversified product portfolio which reduces the company’s risk and increases the growth
opportunities.
Now that the strengths of HP were discussed, the following portion will discuss the
weaknesses of the company. The first weakness is the undifferentiated products such as laptops or
desktop computers. The company competes with Dell and Lenovo in this category. Nowadays,
laptops are very similar, and it is difficult to stand out. Therefore, HP’s current products are not
rare except the 3D printer which is in the process of being launched. Another weakness is the
damaged reputation that the company has had in the past few years. The bad reputation comes
from merging failures and lawsuits from shareholders to the company. Based on the Bloomberg
news, “Hewlett-Packard will provide an $8.8 billion write-down connected to the merger.” This
means that the shareholders were not satisfied with the management and sued the company after
not being informed about the merger. This hampers their image in the eyes of investors and
10
customers. However, despite these weaknesses which impacted the company negatively, HP
decided to turn them into strengths by splitting the company.
Peter Drucker once said, “Efficiency is doing things right; effectiveness is doing the right
things.” The split is predicted to improve the efficiency and increase the effectiveness of the
company. Decisions with positive results are what make a company valuable. There are three types
of resources that add value to a company according to the power points discussed in class.
Tangible, intangible, and organization capabilities. Tangible resources include patents and
innovative secrets. According to Business Insider, “Hewlett-Packard has 23,904 patents.” This
means that HP is a company hard to imitate. Reputation is an intangible resource. The brand name
speaks for itself. As the HP website says, “HP is the birthplace of Silicon Valley.” The company
is known for its legacy; innovation. At last, but not least an excellent customer service adds value
to the company. This is considered an organization capability since customer service transforms
inputs to outputs to combine tangible and intangible resources to attain a desired end.
11
External Analysis
HP’s external analysis will be discussed based on the Porter Five Forces, also a general
assessment of the competition will be discussed in this section.
Threat of New Entrants (Moderate): HP operates in one of the most competitive
markets which is the electronics industry. Due to the intense market, the company’s revenue has
been decreasing in the past quarters. The market is not attractive for profit-seeking investors. A
start- up company could potentially produce computers to compete with HP, but millions of
dollars are needed to compete with companies like HP or any other well recognized brand. The
only way a new entrant could stand out is by distinguishing itself with advancement or
improvement on current technology. Though the possibility of a new entrant to be successful is
small, it can happen if the new technology brought is significant enough to outweigh brand
recognition. Therefore, the threat of new entrants is moderate.
12
Bargaining Power of Suppliers (High):
HP has over 700 suppliers all around the world. Most of the companies that supply
to HP are small companies, therefore they do not have as much influence. However, the larger
suppliers do impact the company directly such as Microsoft and Intel. If these suppliers end the
relationship with HP, it will be detrimental to the company. Since HP computers operate with
Windows software and Intel provides the processors to HP’s computers.
Bargaining Power of Buyers (Moderate):
HP has a wide variety of buyer groups, therefore HP does not have a buyer group
powerful enough to influence them directly. However, the personal computer market is extremely
competitive, and home customers can demand more features to improve the product.
Technological companies will meet the needs of the buyers to increase their profitability.
Threat of Substitute Products (High):
Even though PCs have been the most popular technological devices in the past
years, there are substitutes emerging for personal computers. As a matter fact, PC’s sales have
been decreasing in the last couple of years. Tablets and Smart phones are starting to replace
computers since these products can provide the same benefits and are more convenient in terms
of size. As time passes, PCs are becoming more obsolete and new productions that offer the
same functions are replacing it.
Threats: The main threat for HP is the slowing growth rate of the PC market. Since
technology is changing rapidly, the company has to keep up with the latest technology. Companies
are under the pressure to release the new products faster. Substitute products such as tablets and
smart phones are a huge threat to HP since the company does not have a significant market share
13
when it comes to these two devices. Also, as mentioned previously, the technological industry is
very competitive. Dell, IMB, and Lenovo offer similar products in terms of price and quality.
Opportunities: Since the PC sales are decreasing gradually, it is essential for HP to think
ahead. HP has been working on 3D printing and is getting close to being launched. This is a perfect
opportunity for HP to take the lead and acquire most of the market. HP offers services as well such
as cloud and security. Services are being very profitable and the company should focus to increase
these services since they promise growth opportunities.
Stake holder analysis:
This graph shows the stock price of HP over a period of time:
The Ticker for HP is HPQ. According to Yahoo Finance, the stock price is $37.4 as for
11/17/2014. The stock price increased by 49 cents in comparison to yesterday’s price. HP’s goal
is to keep the shareholders satisfied and ever since the company split, the stock price has gone up
gradually. This is attractive to investors since the change seems to be taking the company towards
the right direction. Also, the introduction of new products such as the 3D printer to the market
increases the price of the stock. According to LA Times, HP stock went up $1.63 or 4% when the
14
split was announced. Also, based on a forecast published on CNN, the stock price is expected to
grow to $45 within the next 12 months. The company’s P/E ratio is 14.1. Companies that are losing
money, do not have a P/E ratio and 14 is the average. This is the right time to have some ownership
of HP since the split is taking the company into the right direction according to the numbers being
analyzed.
15
Strategies
Current HP Strategy:
HP’s strategy to counter attack the low net income trend is to split the company in half. This
has been a topic for the past two years and has not been possible until now. The CEO, Meg
Whitman firmly believes that the split will help the company tremendously when stating, “The
decision to separate into two market-leading companies underscores our commitment to the
turnaround plan. It will provide each new company with the independence, focus, financial
resources, and flexibility they need to adapt quickly to market and customer dynamics, while
generating long-term value for shareholders.” First of all, the company is starting to get too
complex based on Whitman’s analysis. Meaning that it is hard to focus on one goal. Therefore,
splitting the company will increase profitability since the goal will be more defined.
According to Fortune Magazine, “HP is moving in the right direction with the split.” Fortune
believes that by splitting the complex company, the efficiency will increase tremendously. The
split will divide the company into HP Inc and HP enterprises. HP Inc will deal with the products
and HP Enterprises will deal with the services.
As always, when big changes happen in a company, it is difficult to say if the change will be a
positive change or a negative change. This is the negative side of the strategy. Even though the
numbers indicate this is the right direction, the risk is still present.
Dell’s current strategy:
The strategy is to simplify the products and services and acquire costumers aggressively.
Dell uses “Smart Selection,” which allows Dell to pre build what they believe will be the most
popular configurations and can be shipped within 24hrs. Which is similar to HP’s “Build to order”
16
program. The pro is that by building at a very high volume and manufacturing in advance, the
supplier cost and manufacturer cost is less expensive. The con is that the inventory will be over
saturated if sales are not made. However, Dell is willing to take this risk since they believe that
knowing exactly what the customer wants is the reason of their success.
IBM current strategy:
Based on Forbes magazine, IBM’s strategy is to cut down cost to offset declining sales. Costs
such as cutting people and cutting back on contract workers since the workforce was growing
extremely fast. Also, the company is moving away from its old line products such as hardware
operations which have lower profit margins by partnering with Apple. IBM will create apps for
Apple and Apple will help IBM to carry its analytics into the modern era. Also, IBM will help by
selling iPads and iPhones. The pros is that the company will decrease costs by laying off additional
people and also it will make brand modernized by partnering with Apple which can lead to an
increase in revenue. The negative side is that the partnership might not go as planned, therefore
the company will not be able to accomplish its goal; modernize the company.
17
Value Chain
The next portion will demonstrate the Value Chain analysis starting with the Primary activities.
(A) Primary Activities:
(1) Inbound Logistics: HP is located in 180 countries which reduces the shipping expenses since
there is a close location to order materials if necessary.
(2) Operations: More than half of HP’s computers are built by subcontractors. This means that
the company reduces expenses when it comes to assembly and storage.
(3) Outbound Logistics: HP uses transportation modeling to optimize product flow. A recent
example is the modification of shipping. The company is designing more compacted shipping
packages to reduce space and increase units when being transported. Also, HP uses a program
which determines the efficiency of transportation. Such as using three airports instead of six
airports.
18
(4) Marketing & Sales: HP has a diversified portfolio of products and services. When a product
does not sell as predicted, other services or products are able to compensate for that loss. Also,
the brand name speaks for itself. There aren’t many HP TV commercials since customers are
already familiar with the quality of the products.
(5) Service: HP supports customers through the entire life cycle of the product and offers 24 hour
assistance directly through their website or through the phone.
(B) Support Activities
(1) Firm Infrastructure: HP had six business segments which are Personal System, Imaging and
Printing, Enterprise Storage and Servers, HP Finance, and HP software. However, with the
recent split the business divided into two segments. HP Inc deals with products such as printing
and imaging. HP Enterprises deals with storage, software, and servers. Both sides of the
company have HP financial services. The finance strategy for HP is to first make sure that the
shareholders are satisfied by delivering maximum value. According to Cathie Lesjak, the Chief
Financial Officer at HP, “The financial plan is to return at least 50 percent of free cash flow to
shareholders through dividends and share repurchases.” The separation of the company will
allow the shareholders to own stocks on both sides of HP. Also, the transaction is intended to
be tax free for federal income tax purpose. This means that the shareholders will benefit
tremendously since the company’s stock has been increasing since the split of the company.
HP is considered to be one the most community minded companies in the Tech industry
according to The Civic 50 which is an organization that ranks S&P 500 companies based on
contributions to the community. HP is ranked #1 for being the tech company that contributes
the most by providing technological relief efforts when disasters strike and for providing large
19
numbers of volunteers. This reflects the continued focus to improve the quality of life in the
communities.
(2) Human Resource Management: HP strives for a diverse workforce. Once the applicant is
selected, there is an assessment done to identify the strengths of the individual and interests to
find their fitting role.
(3) Technology Development: HP has recently been investing more funds into their research and
development. According to the HP website, the company is spending 3% of the revenue to
come up with new technology. The company has increased the percentage due to the fact that
3D printing is almost ready to be introduced into the market.
(4) Procurement: According to Financial Plan’s article HP offers, “HP raises the bar in
procurement through use of technology.” HP uses an aggressive set of technology tools and
advanced processes to drive its procurement function. HP’s has developed a web based esourcing application that allows real time and interactive capabilities which includes vendor
bidding and auctions. Also, HP covers over 700 suppliers and 400 contracted manufacturing
sites worldwide. This means that the company reduces overhead expenses such as plant and
equipment by obtaining 50% of the PC supplies from suppliers. The high amount of suppliers
give HP the power over the supplier since it is not dependent on just one supplier.
Competitor Analysis: The closest competitor to HP is Dell. The following portion will
demonstrate the competitor’s activities.
(1) Inbound Logistics: Dell’s inventory turnover time is seven days. The parts needed to assemble
PC’s are delivered by suppliers. The company also has a good relation with its suppliers over
backward integration. HP and Dell have an equivalent Inbound logistic since both companies
20
have a good relation with its suppliers and both companies have a low turnover rate in
comparison to the competition.
(2) Operations: Dell has in-house assemblies instead of outsourcing since they believe they will
have 6% cost advantage. Dell is inferior in terms of operations since they have a higher expense
in comparison to HP.
(3) Outbound Logistics: Dell offers customized orders to satisfy the customer. This means that
it takes longer for the product to arrive. However, HP does this as well as all the competitors.
Outbound logistics is equivalent between the companies.
(4) Marketing & Sales: Dell has a competitive advantage when it comes to online sales.
According to a research done by Dr. Dudivskiy, “Dell is the first company to make $1 million
online sales on computers.” The marketing method is to highly advertise online and they have
been doing this since online shopping became popular. However, based on Yahoo Finance, HP
has more sales for the past quarters. Therefore, Dell is inferior in terms of marketing and sales.
(5) Service: Dell has an excellent customer service structure both before and after sales. Most
customer service is done through the website Dell.com. The service is equivalent to HP’s
customer service; outstanding.
(B) Support Activities
(1) Firm Infrastructure: Dell is the world’s #3 supplier of PC’s behind Lenovo and HP. It offers
servers, data storage, printers, and software. The structure is very similar to HP, however HP
generates higher revenue. Therefore, HP has a superior firm infrastructure now that the
company was split into halves which allows the company to be more focused. Also, HP has a
bigger plan in terms of growing the company since the decision to split the company was one
21
of the most important decisions that the company has ever done. Most of Dell’s financial
information is confidential, therefore it is uncertain what the company’s next move will be.
(2) Human Resource Management: According to Dell’s website, the company has close to
100k employees and HP has around 300K. This means that HP has a stronger workforce to
respond quicker to customer needs. Also, according to Glassdoor.com, HP employees are a
little more satisfied with the company than Dell’s reviews. Dell is inferior when it comes to
human resource management since HP is in the list of the 15 most valuable global brands and
employees are more satisfied working for this company.
(3) Technology Development: Dell has high standards for R&D, therefore it has various tests
and quality control processes to check the quality of parts. According to the Dell’s financial
reports, the company spends 2% of the total revenue on R&D. This means that HP is spending
more on this section and is superior to Dell when it comes to technology development.
(4) Procurement: Dell works closely with the suppliers and has built long term relationships
with reputable suppliers. The product is delivered in a timely matter and adapt to new ways
to reduce costs. HP also has great relationships with its suppliers, therefore the procurement
is equivalent for both companies.
Temporal Comparison:
(A) Primary Activities
(1) Inbound Logistics: HP emerged during the Great Depression in the 1930’s. Also, the
company began locally, therefore shipping was extremely expensive. However, Pearl
Harbor occurred in 1941 and the economy lifted. The timing was perfect for the company
since the country began to manufacture and the economy flourished. This allowed the
company to hire more employees and for the suppliers to get business.
22
(2) Operations: HP’s operations changed drastically when the company focused on
computers instead of calculators or “electronic slide rule” in 1970. This meant that the
company had to have subcontractors manufacture parts of computers since they were not
leaders in that industry. Also, this was the period of the Vietnam War, meaning that more
jobs were created, therefore the operations of the company was positively affected by the
economy.
(3) Outbound Logistic: Computers are becoming thinner and take less packaging space as
time passes. In 1980’s the company could not move the computers as fast as today since it
was more expensive due to the heavier and larger computers. Also, the inventory turnover
rate was lower since the first customers were only companies and not home consumers.
(4) Marketing & Sales: According to Professor Pederson, “PCs accounted for only 5.7
percent of the company's overall revenues in 1992.” The company only targeted
businesses, however once the company targeted home consumers in 1995, the sales
skyrocketed. Also, HP used to mainly sell calculators, however when Texas Instruments
was created, HP lost market share in 1973. Professor Pederson stated, “Hewlett-Packard
made its first decisive move into business computing.” By focusing the marketing into the
computer business, the company was able to diversify its portfolio and increase
profitability.
(5) Service: When the internet was created, this was a way to improve customer service by
offering online support. Also, when HP started expanding internationally, service became
more efficient.
23
(B) Support Activities
(1) Firm Infrastructure: Since the company split, HP had to modify its entire structure.
Also, when HP merged with Compaq, the firm infrastructure had to be modified to some
extent.
(2) Human Resource Management: Since the company split, HP is currently hiring more
than ever since there are two sides of the companies, more accountants and finance
professionals are needed.
(3) Technology Development: R&D increased in 1973 when Texas Instruments entered the
market and HP invested on computers. Also, the R&D increased whenever the idea of 3D
printing was originated.
(4) Procurement: When HP first started in 1939, it did not have 700 suppliers. As a matter
fact, the company would build the product from the beginning stages.
24
Recommendations
1.) (Strongest) One main recommendation is to decrease the inventory which is taking a
huge hit on the company. By doing so, the company will be able to generate cash
quicker, and will be able to spend it to make the company grow. Some ways to reduce
inventory is to cut the price of the product, spend more in marketing, and forecast
better to prevent this in the future.
2.) Another recommendation is to reinvest more in the company such as R&D to come
up with a smart phone or tablet that is able to compete with the giants of the industry.
Since the PC sales will decrease gradually as more substitutes emerge, HP needs to
start thinking ahead (aside from printers). Although, this attempt has already occurred
and the company failed, it was also a great learning experience for the company. With
the innovation and workforce of HP, this would be a great opportunity to acquire a
piece of the market share, and increase profitability.
3.) At last, but not least, HP should keep thinking about the future, and innovation. Based
on Forbes, a vast majority of the employees are getting close to retirement. The
innovation that the company needs will come when HP starts hiring highly motivated
college students that cannot wait to make a change. By retiring the older individuals, it
will reduce expenses, and the company will save money by hiring younger people since
they do not have as much experience. Innovation is the key in the technology industry
and if a new product is successfully introduced into the market, it will bring a
tremendous amount of revenue.
25
Strategic Plan:
The strongest recommendation is to reduce inventory. Even though the company tends
to have more inventory since the supplier has a high bargaining power, the company is
suffering to a large extent as shown on the income statement. The first step will be to
spend more on marketing. HP has high quality laptops, but they are not being advertised
as they should be. Advertisement such as TV commercials and internet ads are ways
that the company can advertise the PCS. Another way to get rid of the inventory is by
offering the product at a lower price, especially the technology that is becoming
obsolete. HP needs to place itself as a company that has better quality than the less
expensive competition and to have equal quality to a more expensive brand. It all comes
down to how the company markets itself. Another way to make sure that the inventory
is not as high, is to make sure that the forecasting is done correctly. This can be fixed
by checking over the finance department more carefully and making sure that the
software used to make predictions is running smoothly. Once that this is done for the
PCs, it can be used as a pilot for other products that the company has to offer. By
reducing the inventory, the company will have cash quicker that can be utilized to grow
the company.
26
Citation

Bloxham, Eleneanor. "HP’s Big Split: The Good, Bad, and Potentially Ugly." Fortune. 3 Oct.
2014. Web. 16 Nov. 2014. <http://fortune.com/2014/10/08/hp-split-meg-whitman/>.

Moorhead, Patrick. "Innovation Is Priority One At HP Inc." Forbes. 6 Nov. 2014. Web. 15
Nov. 2014. <1.) http://www.forbes.com/sites/patrickmoorhead/2014/11/12/innovation-ispriority-one-at-hp-inc/?partner=yahootix>.

Gullo, Karen. "HP-Autonomy Lawsuit Accord’s Fairness Questioned by Judge." Bloomberg.
11 Sept. 2014. Web. 16 Nov. 2014. <http://www.bloomberg.com/news/2014-09-26/hpautonomy-lawsuit-accord-s-fairness-questioned-by-judge.html>.

"Planning to Split." Business Insider. 5 Oct. 2014. Web. 15 Nov. 2014.
<http://www.businessinsider.com/hp-is-planning-to-split-2014-10>.

Amaral, Jason, and Dorothea Kuettner. "Analyzing supply chains at HP using spreadsheet
models." Interfaces 38.4 (2008): 228+. Business Insights: Essentials. Web. 17 Nov. 2014.

Santos, Cipriano, et al. "HP enterprise services uses optimization for resource
planning." Interfaces 43.2 (2013): 152+. Business Insights: Essentials. Web. 16 Nov. 2014.

"Hewlett-Packard Company." International Directory of Company Histories. Ed. Jay P.
Pederson. Vol. 111. Detroit: St. James Press, 2010. Business Insights: Essentials. Web. 17
Nov. 2014.

US SEC (2012). Hewlett-Packard Company 10-K. Available at:
http://www.sec.gov/Archives/edgar/data/47217/000104746912011417/a2211959z10-k.htm
27


http://www.latimes.com/business/technology/la-fi-hewlettpackard-reportedly-plans-to-splitinto-two-companies-20141005-story.html
http://www.dell.com/learn/us/en/uscorp1/secure/2012-08-15-dell-fy14-q2-earnings

http://finance.yahoo.com/q/co?s=HPQ+Competitors

hp.com
28