Hewlett Packard Services in Demand - Analyst Blog


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Hewlett-Packard Company ( HPQ ) recently announced that it has been awarded a service deal extension with the U.S. Department of Veterans Affairs (VA). Per the contract, HP will continue being the prime contractor for the Compensation and Pension Record Interchange (CAPRI) support program of the agency. Financial details of the deal were kept confidential.

The U.S. agency is engaged in the task of providing disability compensation, pension, education, home loans, life insurance, vocational rehabilitation, survivors' benefits, medical benefits and burial benefits to veterans and their families. The CAPRI program is targeted at the improvement of services to disabled veterans.

HP has been working on this CAPRI program for the past 10 years. The deal extension will require HP to provide business process analysis, testing services and overall project management along with software design, development and support services. The company's expertise will help the U.S. Department to provide veterans prompt online access to medical data, which will accelerate benefits determination and claims processing.

HP has been serving government verticals for a long time. The gamut of deals gives the leading PC vendor a wide exposure to this space. In February, HP signed a service deal with the U.S. General Services Administration for a sum of $48.0 million, under which the company will help the agency in managing personal details of 500,000 federal employees. HP was also awarded a service deal extension by the North Carolina Department of Health and Human Services for an undisclosed amount.

HP delivered a marginal 1.0% year-over-year growth in its Services revenue in the first quarter of 2012. Within the segment, Technology Services revenue increased 2%, Application and Business Services revenue was flat and IT Outsourcing revenue recorded a growth of 2% year over year.

HP's expert services may attract a number of government deals but the contract prices are not encouraging enough to drive revenue growth.

We are concerned regarding the last quarter results, which were lackluster compared with the year-ago period. But we are looking forward to the implementation of Meg Whitman's strategies and are encouraged about HP's focus shift to the higher-margin cloud computing arena.

This will be beneficial to HP since the company is not making desired profits from its legacy PC business. Nevertheless, the tech giant continues to lead Dell Inc. ( DELL ) and Apple Inc. ( AAPL ) in the PC market.

Currently, HP has a Zacks #3 Rank, implying a short-term Hold rating.

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