H-P Revamps IT Ties with P&G

Hewlett-Packard Company’s ( HPQ - Analyst Report ) long-standing relation with the gigantic FMCG (fast moving consumer goods) dealer Procter & Gamble Co. ( PG - Analyst Report ) was further strengthened with the latest information technology (IT) service deal between the two. Yesterday, H-P announced that it will be extending its enterprise service support to help P&G achieve constant and uninterrupted IT services. The financial details of the multi-year deal were kept confidential.

Per the terms, H-P will upgrade and automate P&G’s IT ecosystem with its 3PAR storage (acquired in September 2010 in a bidding war with Dell Inc. ( DELL - Analyst Report ) ), networking, cloud and converged infrastructure solutions. With all possible IT support from H-P, P&G will be able to convert its private cloud to a hybrid cloud, which will allow greater flexibility to cope with the changing market dynamics.

The solutions, altogether, will reduce system downtime and ensure continuous data exchange across P&G’s internal processes. This will, in turn, lead to an efficient go-to-market strategy that could keep the FMCG giant ahead of its peers.

H-P has been dealing with the consumer goods industry for years. No doubt the tech behemoth has gained a rich experience over the market dynamics, relying on which its sizeable customer base is benefiting every time. Rapid product innovation, a good understanding of the changing demand, supply chain optimization, customer satisfaction and efficient customer feedback are critical to sustain itself in the fast changing Consumer goods market. H-P’s technological innovations have given it the expertise to take care of these key issues.

Despite consistent wins, H-P’s services have not seen much growth in the past few quarters. This could be because of the fact that a large number of deals come from the government vertical. Since government contracts usually go to the most competitive bidder, take time to get approved and also don’t come at attractive prices. Another problem with H-P’s government business is the still-constrained budgets due to the uncertain macro environment.

We are also disappointed with last quarter’s results, which were not as great as in the year-ago period. But we are looking forward to the implementation of Meg Whitman’s strategies and are encouraged about H-P’s shift in focus to the higher-margin cloud computing arena. This will be beneficial to H-P since it is not making desired profits from its legacy PC business.

Currently, H-P has a Zacks #3 Rank, implying a short-term Hold recommendation.