Zacks_Analysts' Blog : H-P Wins FEMSA Deal - Analyst Blog

Hewlett-Packard Company (HPQ) secured a five year technology outsourcing contract from the largest soft drink manufacturing company Coca-Cola FEMSA (KOF), the Coke bottler in Mexico.

The five-year agreement requires HP to provide necessary support to Coca-Cola FEMSA's Latin American business. The tech major will take the responsibility of consolidating 348 locations to a single data center in Mexico and will also migrate some applications and server monitoring and management services currently carried out in Brazil and Argentina.

HP will continue to manage its Latin American operations covering Argentina, Brazil, Colombia, Costa Rica, Guatemala, Mexico, Nicaragua, Panama and Venezuela. This apart, the full operation will include additional technologies from SAP AG (SAP) and Microsoft Corp (MSFT).

Hewlett Packard is generating new ideas on a regular basis, which is helping it to diversify its business. HP is also making considerable effort to boost revenue across all business segments.

In the recent past, the company has taken several initiatives with regard to its Printing and Notebook business. HP has also taken up the task of enhancing its notebook product line. The company recently came up with new advanced gadgets in this segment, which offers optimum balance between enhanced performance, mobility and price.

We remain positive on HP’s performance going forward, given its leadership position in the PC and Server segments. But we are not very confident about a substantial improvement in the company’s consumer business in the near future, due to significant increase in competition.

Moreover, HP is aggressively pursuing its cloud computing interest. Given that cloud computing is expected to be a $143 billion market by 2013, the company’s increased focus on the market is encouraging. For this purpose, HP is managing the cloud-based architecture for companies, helping them transform from the traditional computing models to a hybrid computing model.

So we believe that these efforts coupled with the gradual revival in IT spending by companies will help HP retain its leading position in the technology world. On the other hand, HP has been missing its overly optimistic targets, citing weakness in consumer demand as the reason. This apart, Europe is still to show sufficient recovery.

The shares have a short-term Hold recommendation (Zacks #3 Rank).