Editor’s note: Jack Narcotta of Technology Business Research says HP has some advantages over Lenovo in the battle for PC and server infrastructure – at least for now. Converged solutions are crucial, he says, after reviewing HP’s latest financial report and CEO Meg Whitman’s commitment to take on Lenovo in the server markets.

HAMPTON, N.H. - While its core PC and data center hardware business remain under attack from mobile devices, and Lenovo is emerging as a multiple-segment threat, HP’s (NYSE: HPQ) 4Q13 performance shows encouraging signs that the company’s evolving product portfolio and its solutions-based messaging are beginning to take hold in its important enterprise customer base and in the global IT market.

TBR believes the strategies implemented by CEO Meg Whitman and her executive team, despite a 0.7% year-to-year decline in revenue to $28.2 billion, which focus on HP’s legacy as an innovator to develop a competitive portfolio of solutions, created an infrastructure that will lead to profitable growth. Better alignment of its internal resources to support developing solutions focused on SMB and midsize enterprise markets, in tandem with an overhaul of HP’s important channel business amplified HP’s enterprise value proposition. TBR believes that HP, by highlighting its capabilities in converged systems, cloud, security and big data, is well-positioned to capitalize on an expected surge in PC refreshes and increased deployment of converged infrastructure that will offset the sluggish performance of its consumer-facing businesses.

  • An expanding portfolio of 2-in-1 PCs will enable HP to capitalize on increased adoption of Windows 8 by enterprises

While the addition of Chrome OS and Android devices to its consumer device portfolio reflects HP’s awareness of the trends that are influencing that shrinking market, the 4Q13 results of HP’s Personal Systems Group (PSG) show that enterprises at the front of the first waves of adopting Windows 8 will influence PSG’s product mix and, subsequently, its financial performance.

Supported by the maturation of Windows 8, the broadening appeal of multimode PCs — keyboard-based devices that feature a movable touchscreen or removable tablet — is generating momentum for HP in enterprise markets. As organizations prioritize sustaining high levels of productivity while employees become more mobile, the profile of 2-in-1 devices such as HP’s Pavilion x2 rises. TBR believes that HP’s wide, multiform factor PC portfolio, in tandem with increased enterprise adoption of touch-screen-based Windows 8 devices, position the company for consistent annual growth in the low single digits through 2014.

PSG revenue rose 4% year-to-year to $8.5 billion in 4Q13, the first year-to-year increase in the last seven calendar quarters. Commercial PC revenue climbed 8% year-to-year in 4Q13, illustrating the strength of HP’s portfolio in that market and the effect of PC refreshes to Windows 8 devices ahead of the April 2014 end-of-service date for Windows XP. In consumer markets, continued pressure from rivals such as Lenovo and Asus, as well as a continued proliferation of Android and Apple tablets into the consumer marketplace, continue to erode HP’s PC market share and drag down revenue. PSG’s consumer PC revenue fell 3% year-to-year to an estimated $2.2 billion.

  • Converged storage and hyperscale servers will play more significant roles for HP in 2014

HP seeks to make software, storage and networking work in unison to minimize management complexity, reduce operation costs and power usage, and increase performance and ultimate solution capacity. TBR believes SMB and midsize enterprise markets are especially important to HP as demand for cost-effective yet capable data center solution stacks is driving server and converged storage growth in contrast to declining demand from large enterprises. Additionally, as more enterprises deploy flexible hyperscale servers aimed at supporting specific workloads that are easier to support and maintain, HP’s channel partners become a cornerstone of HP’s strategy to extend its leadership of the x86 server market.

In light of Lenovo’s acquisition of IBM’s x86 server business, these converged solution sets — and the SMB and midsize markets into which they are sold — will become increasingly important to HP to earn new business and protect its existing customer base from what TBR expects will be competitively priced solutions from Lenovo in 1H15.

Revenue from HP’s industry-standard x86 servers climbed 6% from 4Q12, and a 42% gain year-to-year in converged storage revenues helped offset a 17% decline in traditional tape and hard-disk-based storage. Total storage revenues were flat as the marked gain in converged storage revenue helped offset the effect of enterprises moving away from hardware-heavy, legacy data center solutions.