Global CIO: Why Hewlett-Packard Must Articulate Its Enterprise StrategyGlobal CIO: Why Hewlett-Packard Must Articulate Its Enterprise Strategy

We are confident about HP's performance going forward as demand is stabilizing and its cyclical businesses (particularly consumer PC) are rebounding. Moreover, H-P has gained share in both PCs and servers against its rivals making it the number-2 provider of IT services, slightly behind IBM.

However, we remain concerned about the long-term growth prospects for the company's printing unit, which has seen a revenue fall of more than 20% in the current year and continued pricing pressure, which may lead to further erosion of profits.

While the company plans to control costs through layoffs and generate incremental savings, the recovery will be slow. HP faces intense competition from IBM, Cisco Systems and Apple, which have reported positive results.

Thus, we maintain our Neutral rating on the stock.

A few months ago, I suggested in an open letter to HP CEO Mark Hurd that his company should position itself to CIOs as "The Transformation Company" based on not only its vast and highly rated fleet of products and services but also because of its in-house IT operational excellence spearheaded by executive vice-president and CIO Randy Mott. (You can read about the remarkable IT transformation planned and executed by Mott and his team here.)

What's IBM known for right now? It has said on multiple occasions that its four core areas of interest are business analytics, cloud computing, its "Smarter Planet" initiative, and ongoing moves into growth regions around the world. IBM is not known for its product lines but rather for its strategic market initiatives. Plus, it's known for having aggressively jettisoned low-margin commodity businesses so that it can pour all of its muscle and energy into higher-margin offerings that put a premium on knowledge as much as on products.

And I believe Hewlett-Packard can be right there with IBM: leading with ideas and with vision and with deep business and technology knowledge and executing with superb technology and services around the globe. That's why another stock-picker, Richard Moroney of Dow Theory Forecast, regards HP as a long-term buy:

"More than 60% of revenue comes from outside the U.S., yet no foreign country accounts for more than 10% of sales. H-P holds the top spot in India with a 17.8% share of the PC market, including a 30.9% share for notebooks. Performance in China and other emerging markets was strong in the July quarter, offsetting weakness in Europe.

H-P's cautious approach carries over to its balance sheet, which boasts cash of $13.59 billion, or $5.58 per share. . . . H-P has enough cash to pay off nearly 98% of its long-term debt. The company also generates excellent cash flow, sharing some of that cash with investors via stock buybacks that have lowered the share count by 14% over the past three years.

Wall Street sees per-share profits rising 5% to $3.81 in fiscal 2009 ending October, followed by an 11% jump to $4.22 in fiscal 2010. Both estimates have climbed over the past month. With a reasonable valuation, solid growth potential, and rising earnings estimates, Hewlett-Packard is a Long-Term Buy."

This second opinion looks more deeply into HP's potential—its growth in key markets like China, the impact of the EDS acquisition 16 months ago, and the company's financial strength—and comes much closer to what Hewlett-Packard represents right now: an enormously talented organization that's just about to grow into itself.

All it needs is to articulate its enterprise strategy: how do the wide-ranging pieces fit together, what is the unique value we offer, how we can help you exploit your key opportunities better than any other IT company in the world, how we can help you become faster and more engaged with customers by cutting the amount of IT budget that gets trapped inside your company so that you can devote that toward customer-embracing growth initiatives.

Some observers might think HP is idling a bit right now in the Neutral zone, but I'm betting that a clear expression to CIOs of its overarching enterprise strategy will trigger a new wave of growth for the company that will make it, like the hog on ice, just about impossible to stop.