Toner News Mobile › Forums › Latest Industry News › *NEWS*HP HOLDS GROUND VS. DELL
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AnonymousInactiveHP 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. -
AuthorDecember 20, 2005 at 10:17 AM
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