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HP’s sluggish recovery fails to impress shareholders

Hewlett-Packard Co. reports its fourth-quarter earnings on Tuesday, and with worldwide PC sales showing little sign of a resurgence, analysts aren't expecting much from the company.

HP's new chief executive officer, Meg Whitman, will be under pressure to show some signs of a turnaround. Last month, shares of HP took a dive after Ms. Whitman announced that HP's recovery plan, which includes a massive round of layoffs, will take longer than expected to bear fruit. Ms. Whitman blamed the delay on the recent executive turmoil at HP (her predecessor, Léo Apotheker, lasted less than a year in the CEO's office).

Like other major computer-makers, HP has tried to focus more of its business on the enterprise and services markets, as sales of personal computers continue to slide. Last month, research firm Gartner said PC shipments in the third quarter of 2012 dropped 8 per cent, compared with the same period a year earlier. According to Gartner, Lenovo Group Ltd. of China is now the biggest PC company by market share, while HP and Dell continue to fall behind.

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The slump in PC sales around the globe is partially due to the general economic slowdown, as well as reluctance to buy new machines ahead of the launch of Microsoft Corp.'s latest Windows operating system, which recently hit the market. But a more worrying factor for traditional computer makers such as HP is the growing change in tastes among consumers – many buyers who used to spend thousands of dollars on desktops are now opting for cheaper mobile alternatives, such as tablets.

HP's position in the tablet market has never been strong, and is made somewhat more complicated by its evolving relationship with its longstanding software ally, Microsoft. For more than a year, HP has tried to capitalize on the growing consumer appetite for mobile devices by unveiling a host of mobile computers running on the Windows operating system. But while Microsoft may have been happy to showcase such HP devices at its various product demonstrations in previous years, the company behind Windows now has a tablet of its own, the Surface. And many consumers who want to buy a Windows-based tablet may decide to buy the hardware from the same company that makes the software, rather than a third-party manufacturer such as HP or Dell.

Nevertheless, Microsoft may yet have a positive impact on HP's fortunes in the near future. Traditionally, many consumers and businesses tend to upgrade their computers soon after a new version of Windows is released, and Microsoft recently launched Windows 8, which is designed in large part to be used on mobile touchscreens. Whether that's enough to change HP's fortunes, however, is yet to be seen.

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