Hewlett-Packard positive about its Personal Systems business despite shrinking PC market
Business overview: Hewlett Packard's turnaround story (Part 3 of 6)
After seven quarters of continuous declines, HP saw its PC business returning to growth in fiscal first quarter of 2014. Personal systems revenue was up 4% to $8.5 billion, with commercial sales growing 8%, especially in notebooks. However, consumer PC sales fell 3%. Total units rose 6% with notebooks unit sales up 5% and desktops units down 3%.
Whitman said on the earnings call that the company saw a net momentum in the long overdue PC refresh in the quarter as enterprises started to replace old systems, and Microsoft (MSFT)’s decision to migrate from Windows XP operating system was also a tailwind contributing to higher sales. Whitman also commented that enterprises are recognizing that while employees may want a tablet, they also need more traditional computing devices to do their real work in the company.
Whitman said the company has seen encouraging results from its multi-operating system strategy, especially with Chromebook. ”There are some groups…who will not need Windows backward compatibility in their laptop,” Whitman said at a technology conference, adding, “I’m convinced this multi-OS, multi-architecture, multi-form factor strategy is the right one for us and we are going to follow the market…and try to be the leading provider there on the commercial side.” Whitman said in an interview with CNBC that , “the need to create, consume, to share is exploding because data is exploding, and there’s so many more things you can do as an individual,” adding “We’ve got to get to mobility, we’ve got to get to other operating systems, and other things” that are being demanded by consumers in this competitive IT environment.
Former CEO Leo Apotheker had announced plans in August 2011 to sell or spinoff the PC business, due to declining sales. However, Whitman later abandoned the plans to spin off the PC business that accounted for one third of the company’s annual revenue. Whitman noted in a recent technology conference that, “And what we saw when we said we might be getting out of the PC business back in August of 2011 that shook the confidence of the channel. So any disruption is not a good thing.”
According to IDC, HP retained the number two position behind Lenovo in terms of PC shipments, but its channels took a more cautious approach in key markets, and shipments in the U.S. dropped by more than 12% year on year. Fourth quarter shipments were also down slightly from the third quarter, suggesting a clearing of inventory as well as slowing projects in Asia/Pacific. The report cited analysts stating that Asian majors like Lenovo (LNVGF) and Samsung (SSNLF) achieved strong double-digit growth, driven partly by a modest commercial uptick and partly due to retail acceptance of their emerging product categories, such as Chromebooks. Dell and Toshiba also managed mid single-digit growth, essentially coming from large corporate refreshes in the enterprise segment. Despite a dip in total shipments, the U.S. market outperformed most other regions and the worldwide market as a whole for the fifth consecutive quarter, reflecting a relative degree of stabilization.
HP acknowledged in October of last year that Microsoft’s move into hardware has impacted its business. Whitman commented in an presentation last year that, “We are seeing profound changes in the competitive landscape. Current longtime partners, like Intel (INTC) and Microsoft, are increasingly becoming outright competitors.”
HP entered tablet market last year with devices such as Slate Tablet and Elite-pad. The company introduced an Android-based, all-in-one desktop, the Slate 21 Pr0, which uses Android 4.3 (Jelly Bean) in January. HP also expanded its product offerings with a new line of innovative “voice tablets” or phablets with 6-inch and 7-inch screens that were launched in India this year. The company is a well-known brand in India, the fastest-growing market for smartphones. Smartphone sales in India rose by 166.8% making it the world’s fastest growing smartphone market in the last quarter of 2013, according to Gartner. Tablet shipments in India for CY 2013 stood at 4.14 million units representing a year-on-year growth of 56.4% over CY 2012, IDC said. Whitman also plans to sell mobile phones in China and the Philippines.
Worldwide tablet shipments grew to 76.9 million units in the fourth calendar quarter of 2013, according to IDC. The total represents 62.4% growth over the previous quarter and 28.2% growth over the same period a year ago. Apple saw its worldwide tablet market share for the quarter grow to 33.8%. Samsung retained its second-place with 18.8% share. Rounding out the top five were Amazon (7.6%), ASUS (5.1%), and Lenovo (4.4%). According to IDC’s Worldwide Quarterly Tablet Tracker, the total tablet market, inclusive of both tablets and 2-in-1 devices, is forecast to grow 19.4% in 2014, down from a growth rate of 51.6% in 2013. IDC reduced the 2014 forecast by 3.6% from its previous projection to 260.9 million units worldwide. The reduction in the short-term forecast was due to slowing consumer purchases as hardware iterations slow and the installed base—particularly in mature markets—continues to grow.
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