*NEWS*HP HOLDS GROUND VS. DELL

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*NEWS*HP HOLDS GROUND VS. DELL

 user 2005-12-20 at 10:17:00 am Views: 109
  • #13396

    HP holds ground vs. Dell; you could call it a win
    Hewlett-Packard’s
    personal computer business should be dead by now, if you had believed
    what many industry analysts were saying a few years ago, crushed
    beneath the juggernaut of rival Dell.
    But something strange happened on the way to the funeral: Dell stumbled, and HP has improbably moved back on track.
    Palo
    Alto-based HP got to congratulate itself Tuesday during Mark Hurd’s
    first face-to-face meeting with Wall Street analysts since he took
    command as chief executive officer on April 1.
    “It’s very clear
    that we’ve made the shift” from straggling also-ran, said Todd
    Bradley, head of HP’s Personal Systems Group, which is responsible for
    PCs and hand-held digital devices.
    “We’ve taken control of the
    levers that drive our business,” Bradley added, when his turn came in
    the middle of a numbing four hours of financial presentations from HP
    executives gathered in New York.
    HP exceeded Wall Street
    expectations in its most recent quarter, ended Oct. 31. One bright spot
    was a 9 percent jump in PC sales, with operating profit margins more
    than doubling to 2.8 percent from 1.2 percent a year earlier.
    Back
    in 2001 and 2002, as then-CEO Carly Fiorina was pushing through an
    unpopular acquisition of Compaq, the deal looked like an alliance of
    losers without a credible plan for reversing a tide of red ink in the
    PC business.
    Criticism of the merger centered around concerns that
    HP was getting deeper into distributing PCs through stores and
    corporate resellers at a time when Dell’s direct-to-the-customer model
    was rapidly gaining market share.
    HP and Compaq had a combined
    operating loss of $728 million from PC operations in 2001. That’s now
    swung to an operating profit of $657 million in the 2005 fiscal year,
    which ended Oct. 31.
    Dell’s growth, meanwhile, has slowed to the
    point where it only matches the PC industry average, while HP is
    growing slightly faster than the industry average. And Dell missed its
    most recent quarterly sales and profit targets.
    If the trend
    continues, HP could eventually win back the crown of global PC
    market-share leader, a title it lost shortly after the HP-Compaq merger
    was completed in 2002.
    The research firm IDC says Dell now has 18
    percent of the world market, with HP at 16 percent. They are the two
    giants of the PC realm; no other competitor is even half HP’s size.
    It’s
    certainly possible HP’s small gain in momentum is yet another example
    of perception outracing reality. Dell is solidly profitable, with room
    to grow, and has bounced back from previous soft spots.
    What’s more,
    PCs remain a tough business. HP’s profit margin of 2.8 percent is well
    below the 4 percent return on U.S. Treasury bills — so investors could
    be better off with bonds than PC builders.
    But the stock market has already decided to run with the Hurd.
    HP’s
    stock price is up an impressive 47 percent since March 28, the day
    before Hurd was named CEO. The stock closed Tuesday at $29.07.
    To look at it another way: Hurd has created $26.5 billion in market value for HP shareholders. Not bad for eight months work.
    |Dell’s
    stock, in the same period, has dropped 14 percent as the Round Rock,
    Texas, company has continued to fall short of its own ambitious growth
    projections.
    HP turned around its floundering PC business by learning, painfully and slowly, how to do several things at once.
    HP
    now actively sells competitively priced PCs directly through its own
    Web site, without alienating retailers and resellers. Dell only sells
    direct, which makes life simpler, but it lacks retail and reseller
    partners to help move more inventory.
    Retailers are giving HP a big
    boost by subsidizing PC prices as a way of building customer traffic
    with the aim of selling them more profitable items such as accessories
    and extended warranties.
    “It’s clear that HP has become more price
    competitive,” says Matt Sargent of the research firm Current Analysis
    in San Diego. “It’s also evident that HP is winning or at least
    performing better than expected against Dell in the consumer space.”
    Dell,
    meanwhile, has lost its reputation for industry-leading quality and
    customer service, apparently because of relentless pressure to reduce
    costs.
    PC World, in its annual survey on customer service in the
    Jan. 2006 issue, says, “Dell’s halo is fading. Once known for its
    excellent reliability and service, Dell received scores for desktops
    and notebooks that were average overall and below average in some
    areas.”
    Average isn’t good enough for Dell, at least not good
    enough to sustain a stock price based on promises of world-beating
    performance.
    HP, in contrast, is now reaping the benefits of
    diminished expectations. Just standing its ground against Dell is
    looking more and more like a victory.