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HP Now Has Many 'Ways'

I remember years ago a special event at the home of David Packard here in Silicon Valley. He was joined by colleague Bill Hewlett and the two together were unveiling Packard's book entitled "The HP Way."

Hewlett Packard
AP
Hewlett Packard

I spent some time with both of them, talking about Bill's management style, the so-called "MBWA," or managing by walking around, getting out to meet employees, seeing what was happening up close and personal.

And David told me one of the keys to the company's success was his single mind of focus, execution.

That was a long time ago, and since then, while execution continues under the stewardship of CEO Mark Hurd, "focus" has become quite the valued commodity.

As HP prepares to release its earnings tonight, consider the company's set-up today: Its new server strategy pits HP squarely against Cisco Systems and IBM; in PCs, it's Apple, Dell, Acer and Sony; in software, it's Oracle and SAP; it's got a budding chip strategy that may one day mean Intel will be supplier and competitor; and its recent acquisition of Palm opens up a huge can of worms, and could mean new competitive fronts against Microsoft in operating systems, and Research in Motion and Apple in smart phones and tablet PCs.

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That's a lot of fronts.

And I'm certainly not suggesting that HP can't handle it. The company has done exceptionally well over the past few years even in the face of a gripping recession. Hurd has redefined the concept of "operational excellence," cutting, streamlining, and focusing on efficiencies. But there's only so much you can cut and reorganize before you have to start putting together product strategies that accelerate in the marketplace. And under the circumstances, and with the company's leadership team, it appears HP is doing remarkably well. But the pressure certainly is on to keep so many disparate businesses humming.

Analysts this time around are looking for $1.05 a share on $29.81 billion. On a unit by unit basis, Street Account says HP's Personal Systems Group should report $6.7 billion; Imaging and Printing $6.2 billion; Enterprise, $4.07 billion; Services $8.51 billion; Software $888 million and Finance $707 million. Non-GAAP gross margins should be 23.2 percent.

As interesting as that all is, the real news will come in the company's guidance and commentary.

The hard numbers are the easy part: consensus has HP expecting $1.06 a share on $29.72 billion in the current quarter, and $4.45 a share on $123.038 billion for the full year. Still, we got a sneak peak at one of the key bogeys facing tech this upcoming earnings season, courtesy of Cisco Systems, now a key HP competitor, and its commentary about the uncertainty in Europe. That could be a regular theme for so many tech companies who spent the balance of the recession highlighting how much of their business comes from overseas customers, and how they'd be more immune to economic weakness in the United States.

The European Debt Crisis - See Complete Coverage
The European Debt Crisis - See Complete Coverage

Now that Europe seems to be on the verge of falling apart, those words may come back to bite them. Cisco had a pretty good report, but as soon as CEO John Chambers expressed some caution about Europe, Cisco's rally retreated.

The same could happen to HP tonight depending on what the company says on its call.

Bottom-line is this: HP has underperformed the Nasdaq over the past month, underperformed the Nasdaq since its last earnings report, and underperformed the Nasdaq so far this year. Tonight should be a strong report, and its guidance should be positive, with those European caveats taken into account. Like Cisco and IBM before it, HP should be an outperformer, but it might take a while for that sentiment to sink in among once-bitten investors trying to navigate their way through Wall Street. If you're looking for an all-star in the sectors in which it competes, I don't see a better opportunity out there than HP.

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