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How HP Aims to Improve Margins and Profitability

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Oct. 9 2015, Updated 6:04 p.m. ET

Operating performance and margins

So far in this series, we’ve discussed The Hewlett-Packard Company’s (HPQ) recent developments and steps to move forward as the company prepares to split into two separate companies, effective November 1, 2015. In 3Q15, Hewlett-Packard (commonly known as HP) posted revenues and non-GAAP (generally accepted accounting principles) EPS (earning per share) of $25.3 billion and $0.88 per share respectively.

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All of its operating segments except Enterprise Group posted negative growths in 3Q15. Printing and Personal Systems together contributed 46% towards non-GAAP operating profit, with Printing’s individual share at 37%. Enterprise Group, Enterprise services, and Software contributions stood at 37%, 12%, and 7%, respectively. HP’s Financial Services negatively contributed 2% towards non-GAAP operating profit in 3Q15.

Layoffs to boost HP’s EPS in 3Q15

In 3Q15, HP’s layoffs led to a 13% YoY (year-over-year) decline in GAAP SG&A (selling, general, and administrative expenses). The company’s GAAP SG&A stood at $2.96 billion in 3Q15, compared to $3.39 billion in 3Q14, thus giving a lift to EPS in 3Q15. As we noted earlier in this series, on September 15, 2015, HP announced further layoffs in the range of 25,000–30,000.

Sold H3C Technologies shares

China (MCHI) is a key Asian market for most technology companies. In May 2015, HP announced the sale of its 51% share in H3C Technologies to the China-based Tsinghua Holdings subsidiary, Unisplendour.

With its recent move to Tsinghua Holdings, H3C now has a native parent company and not a foreign parent company—a strategic step taken by HP to improve its future growth prospects in China, as well as get a politically connected ally in Tsinghua Holdings.

Intel Corporation (INTC) has also made a strategic alliance and investment in Tsinghua Group in 2014 to strengthen its foothold in China, buying a 20% stake in Tsinghua Holdings for $1.5 billion.

In October 2014, SAP AG’s (SAP) head of the Greater China regions, Mark Gibbs, stated that the company aims to be a “complementary player to the Chinese market.”

If you’re optimistic about HP, you might consider investing in the Technology Select Sector SPDR (XLK), which invests about 1.25% of its holdings in the company.

Read the next part of this series, wherein we’ll look at the upcoming HP Inc’s plans under new management.

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