DELL Dell Inc. (MM)

Hewlett-Packard Company (HPQ) recently clinched an information technology (IT) services deal with travel technology solutions provider Sabre Holdings. H-P will get a total sum of $800 million for this 6-year deal.

U.S.-based Sabre Holdings provides software to travel agencies, corporations, travelers, airlines, hotels, rent-a-car companies, railways, cruise companies and tour operating companies. The company selected H-P’s networking and flexible storage solutions to ensure a scalable and efficient technology infrastructure.

Using H-P’s hardware and software infrastructure technology, Sabre Holdings will be able to free itself from focusing on IT servicing issues, while concentrating on new business plans. H-P’s services will also help the travel technology provider to reduce its supervision cost.

Years of expertise and quality services have forced customers to select H-P Enterprise Services. H-P is on a deal winning spree this month. The U.S. Department of Veterans Affairs extended a service deal whereby H-P will continue being the prime contractor for the Compensation and Pension Record Interchange support program of the agency. The tech giant also clinched a 5-year service deal with the Royal Automobile Club of Cataluña for an undisclosed sum.

Despite consistent wins, H-P 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.

We have also noticed that H-P’s services did not perform well in the past few quarters. It could due to the fact that a huge amount of deals come from the government vertical. The contract prices of these government deals are not encouraging enough to drive revenue growth.

We are concerned regarding the last quarter results, which lacked luster compared with 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. Nevertheless, the tech giant continues to lead Dell Inc. (DELL) and Apple Inc. (AAPL) in the PC market.

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

 
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