Challenges in the PC MarketLonger term, some clear challenges confront the PC market. Recent earnings disappointments at companies like Dell ( DELL) show that the future of the PC market is questionable at best. For HP, these concerns extend into areas like services, servers and printers. So, while there were modest short-term improvements for HP, broader trends in many segments have already started to show significant weakness. To meet these challenges, HP will need to modify its businesses and adapt to the changing demand of the consumer. But the reality is that successful examples of these types of brand reformation are rare. Apple ( AAPL) is perhaps the best example of a company that faced a desperate situation (lack of competitive edge, stalling stock prices), and still managed to turn things around in a big way. But HP is a very different type of company, and attempts at innovation in music and mobile devices will not be viable.
Period of TransitionMeg Whitman assumed the role of CEO at HP nearly two years ago. The company is still the world's largest producer of IT hardware but its overall performance has been lackluster, as declining sales and new market competition add to its list of challenges. HP's balance sheet remains a point of weakness but this is not altogether surprising given that the company has changed its chief executive four times in the last six years.
The wider weakness, however, cannot be ignored. Price cuts by Dell helped contribute to HP's 12% decline in its server business. HP has announced a new product line in low-power servers but these will not add to the company's profit results until 2014. Whether or not HP can complete a successful transition in its central areas of weakness remains a major question going forward. And with the stock trading at highs for the year, upside remains limited and risk to reward ratios favor selling the stock at current levels. At the time of publication the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.