Hewlett-Packard Company (HPQ) recently announced its extension of a service deal with the German automobile company, BMW Group. This multi-million dollar deal has been extended for another five years.
Per the agreement terms, HP will provide extensive support services to the networking infrastructure it deployed in the BMW Group’s information technology eco system.
In addition to support services, HP will deliver certain E-series switches to BMW. The tech giant’s broad-based and reliable networking infrastructure has enabled BMW Group to focus solely on its business growth. Moreover, BMW noticed that HP’s continuous supervision has led to a reduction in its operating cost.
The extension of the already long-standing relationship reaffirms the demand for HP’s networking solutions, which establishes the PC maker as a key player in the networking arena. Moreover, we believe that an association with such a renowned automobile company could prove beneficial to HP, given the deal extensions it could bring. It could also bring in more networking deals from big firms.
Apart from this, we remain encouraged by HP’s continuous deal wins from the government verticals. Though most of the government deals bear lesser value, we believe these could still make major contributions to the total revenue if they come in big numbers.
Despite its wide exposure to computing, server, cloud and printing verticals, we would prefer to remain cautious for the near term considering the lowered revenue outlook, which reflects moderate demand for desktop PCs, manufacturing problems in Japan and lower exposure to tablets. Intense competition from other technology companies, such as Cisco Systems Inc. (CSCO), Apple Inc. (AAPL), Microsoft Corp. (MSFT) as well as smaller Asian players is worth watching out for.
Currently, HP has a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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