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  • 1. Hewlett Packard (HPQ, Buy) Enterprise Infrastructure: Storage Mark Kelleher March 2010
  • 2. HPQ – Key Facts Location : Palo Alto, CA Market Cap : $125.8 Billion FY 2009 Revenue(A): $114.4B FY 2010 Revenue(E): $123.4B FY 2011Revenue(E): $131.2B FY 2009 EPS(A): $3.83 FY 2010 EPS(E): $4.43 FY 2011 EPS(E): $4.91 Net Cash per share: ($0.93) Year end: Oct Next Q report : Apr Q2 Products : ESS, EVA, HP printer & computers, EDS Competitors : ORCL, IBM, DELL, APPL, CSCO, EMC, LXK, NTAP Customers :45% Enterprise, 56% intl HP is a leading supplier of IT solutions to both the enterprise and consumer markets. HP sells storage, servers, services and software to enterprise customers, and personal computers, imaging and printing services to both the enterprise and consumer. Through the use of partners such as Microsoft (MSFT, NR, $32.00) and others, HP is able to differentiate its products by leveraging its vast global distribution, large R&D budget, and large balance sheet by acquiring cutting edge services and products. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 3. What They Do
    • HP is a leading supplier of IT solutions to both the
    • enterprise and consumer markets.
    • HP sells storage, servers, services and software
    • to enterprise customers, and personal computers,
    • imaging and printing services to both the
    • enterprise and consumer
    Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 4. What They Do Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 5. What They Do Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 6. Investment Thesis
    • Cloud Computing. We believe a key vertical for the company is the cloud computing market. HP has key partnerships with the top two virtualization vendors in VMware (VMW, Hold, $50.00) and Microsoft which will be critical as HP becomes the cloud computing expert for enterprises globally. Service providers will require unified solutions to solve the complexity of cloud computing, and we believe will to companies such as HP which can offer a full suite of solutions.
    • Global reach. With a global distribution and a broad portfolio which is improving with the several technology acquisitions made over the past several years we believe HP will be able to take share in an enterprise’s IT budget and will be able to continue to innovate on the consumer side.
    • The stock is undervalued: 12 month price target of $59.
    Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 7. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Acquisitions Source: Company Reports
  • 8. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Acquisitions – 3com
    • Announced on November 11, 2009, HP announced the planned acquisition of 3COM for $2.7B. The deal is expected to close by the end of April 2010. 3COM is headquartered in Marlborough, MA and has sales offices in 35 countries and 60 global locations.
    • 3COM generated 1.3B of sales in F2009 (ended May) which would represent approximately 1% of HP revenues.
    • The company operates two primary businesses, Networking and TippingPoint Security Business.
    • The networking segment includes Layer 2 and Layer 3 stackable 10/100/1000 managed switching lines, modular switching lines, routers, IP storage and SMB products.
    • TippingPoint segment includes products and services, such embedded firewall, virtual private network, features network-based intrusion prevention systems (IPS) and network access control (NAC).
    • While the acquisition will not add much revenue or dilution to the HP model right away, HP’s ability to bundle 3COM networking with its storage and servers will enable HP to better compete with the Cisco UCS and other unified systems.
  • 9. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Market Data Source: Company Reports
  • 10. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Market Data - Servers Source: IDC
  • 11. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Market Data – W/ 3Com acquisition Source: IDC, 2009
  • 12. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Market Data - Printers Source: Company Reports
  • 13. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Market Data – PC’s Source: IDC
  • 14. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Products – Q1 2010 Source: Company Reports
  • 15. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com HP Services (includes EDS) Source: Company Reports
  • 16. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Enterprise Storage and Servers (ESS) Source: Company Reports
  • 17. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com HP Software Source: Company Reports
  • 18. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Personal Systems Group (PSG) Source: Company Reports
  • 19. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Imaging and Printing Group (IPG) Source: Company Reports
  • 20. Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Segments driving EPS Source: Company Reports -Services and printers are the key to HP EPS upside. Keep an eye on storage. -Enterprise accounts for 60% of operating income (storage and servers, services and software)
  • 21. Income Statement Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 22. Income Statement Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 23. HPQ Chart Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com Reports Q1 results and guides above the street
  • 24. Valuation Mark Kelleher (508) 655-8193 [email_address] We believe the company can maintain at least 10% revenue and earnings growth over the next several years. Using a P/E/G ratio of 1.2 (a P/E multiple of 12x) on our F2011 EPS estimate of $4.91, we calculate a 12-month price target of $59.00. We believe the company can maintain at least 10% revenue and earnings growth over the next several years. Using a P/E/G ratio of 1.2 (a P/E multiple of 12x) on our F2011 EPS estimate of $4.91, we calculate a 12-month price target of $59.00.
  • 25. Investment Summary Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
    • Cloud Computing. We believe a key vertical for the company is the cloud computing market. HP has key partnerships with the top two virtualization vendors in VMware (VMW, Hold, $50.00) and Microsoft which will be critical as HP becomes the cloud computing expert for enterprises globally. Service providers will require unified solutions to solve the complexity of cloud computing, and we believe will to companies such as HP which can offer a full suite of solutions.
    • Global reach. With a global distribution and a broad portfolio which is improving with the several technology acquisitions made over the past several years we believe HP will be able to take share in an enterprise’s IT budget and will be able to continue to innovate on the consumer side.
    • The stock us undervalued: 12 month price target of $59.
  • 26. Coverage Mark Kelleher (617) 752-1745 mark.kelleher@brigantineadvisors.com
  • 27. Disclosures