Can This Merger Save Hewlett-Packard?

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In the tech world, the minute you fall behind trends in new technology is the moment you lose your competitive edge. A recent case in point is Hewlett-Packard's (NYSE: HPQ) inability to adapt to the rise in tablet computers and cloud networks. The company failed to invest in these areas and is now struggling to reverse its fate. In an effort to buy the mired tech giant some time, HP's CEO, Meg Whitman, decided to combine the company's PC and printing businesses in hope of lowering costs and eventually lift HP out of troubled times. But is it enough to power a comeback? 

More of the same
Lots of investors, including me, want to see HP emerge as a successful turnaround story. But I doubt it will happen anytime soon. Merging the two businesses will lead to job cuts and ultimately money saved. However, this isn't a new strategy. According to The Wall Street Journal, the company's PC and printing divisions were combined in 2005, only to have then-CEO Mark Hurd divide them again six months later.   

Other than reducing costs through job cuts, this internal restructuring of its businesses does little to address the bigger problem HP faces. Once a Silicon Valley sweetheart, the company now struggles to keep up with competitors such as Apple(Nasdaq: AAPL) and Cisco Systems. Apple's newest iPad exceeded expectations recently, with the company selling 3 million devices during the first three days of its launch. Analysts now expect the iPad to outsell the entire PC market this year, according to a research note from Piper Jaffray analyst Gene Munster.

For further evidence that tablets are taking over the PC market, consider Amazon.com's (Nasdaq: AMZN) Kindle Fire device. Amazon delivered more than 4 million Kindle tablets in its latest quarter, according to research firm IDC. That puts Amazon in the No. 2 spot for tablet-PC dominance, with 16.8% of the market, behind Apple's 54.7% share of the global tablet industry. With tablet computers quickly taking the place of PCs, HP needs a mobile strategy, not a regurgitated merging of its existing PC and printing businesses.


No quick fix
If HP wants to survive in this increasingly mobile world, it'll need to start innovating alongside the competition. Shares are down nearly 9% since the start of 2012. To put that in perspective, consider that the S&P 500 is up about 12% so far this year. With an attractive P/E of 8.5, the stock would be a no-brainer if I thought the company was headed toward a turnaround. But I don't see HP recovering anytime soon, if ever. For this reason, I'm giving the stock an underperform rating on my profile in Motley Fool CAPS.  

HP may not be able to make a meaningful comeback, but that doesn't mean you should suffer. There are plenty of investing opportunities in the tech space; in fact, you can find out which stocks are cashing in on the smartphone and tablet revolution now by reading this free report from The Motley Fool: "3 Hidden Winners of the iPhone, iPad, and Android Revolution." 

At the time this article was published

Fool contributor Tamara Rutter owns shares of Apple and Amazon.com. Follow her onTwitter, where she uses the handle@TamaraRutter, for more Foolish insights and investing ideas. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Amazon.com and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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