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3 Winners And A Loser As HP Adopts Android

Stocks in this article: AAPL GOOG HPQ MSFT NVDA

Chris Lau, Kapitall  Ever since reporting a weak quarter in late-2012, followed by surprising investors with one that beat expectations in February 2013, Hewlett-Packard (HPQ) shares are now up 87% from its 52-week low. A chronically weak 2012 for the PC market made it more difficult for HP to recover. HP is relying on server hardware and corporate software sales to make up for the lost revenue. Growth in mobile devices like tablets were out of the picture, until now, thanks to tablets. [Related tech lists:  Watch These 4 Suppliers When Samsung Galaxy 4 Released]

HP is re-entering an NVIDIA-powered (NVDA) tablet, by using the Tegra 4 chip. The move bodes well for both companies. There have not been as many Tegra 4 adoptions announced as investors would like. For HP, the adoption of Android for tablets is an extension of its computer diversification. The inexpensive Google (GOOG) Chromebook is made by HP. 

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Analysis

HP needs to build a position in tablets, because mobile devices are growing very fast. In the fourth quarter, Apple (AAPL) shipped 27 million units when tablets are counted. HP falls behind when mobile devices are included, because the company only shipped 15 million PCs. The partnership with Google creates a win for both companies. Google gets another hardware supplier to help grow the Android user base. HP reduces its reliance on Microsoft’s (MSFT) Windows system. This reduces inherent risks for investors, particularly when Windows 8 sales are not off to a strong start. It gives HP a better bargaining position with Microsoft.

The impact of a slow start for Windows 8 sales, which will hurt HP in the short-term, is also reduced. It is not known if HP will be making any money from the tablet. Lost in the headlines was that a Windows-based tablet will be made. The prices for the tablet will range between $170 and $700. When a Microsoft-based tablet is compared to that of an Android-based one, a Microsoft solution appears to be of less value to the consumer.

Business Section: Investing Ideas

Three Winners

Hewlett-Packard (HPQ) closed recently at $21 after breaking out from the $16-range. Measured from Kapitall’s tool with a Price of Profit (“POP”) of 6, HP is still inexpensive.

NVIDIA Corp. (NVDA). The Tegra makers get a vote of confidence with the support of HP.

Google (GOOG). Google gains another hardware maker for Android. The search-giant improves advertising profits when a channel for its search grows.

…and a Loser

Microsoft (MSFT) will face stiffer competition for its Surface tablet as another hardware maker offers Android. Microsoft is not gaining traction for Windows 8 sales as hoped, even when the operating system was priced at a significant discount for early adapters. There could still be hope, as hardware makers release Windows 8-based tablets, hybrids, and Ultrabooks. If the industry lowers the price for Ultrabooks, it could boost Windows sales.

 

Written by Chris Lau, KAPITALL contributor

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