News
HP Gains on Dell in Tough PC Market
Just five months after its $19 billion acquisition of Compaq Computer Corp.
gave Hewlett-Packard Co. the No. 1 ranking in worldwide personal computer shipments,
a new batch of market numbers delivered some stomach-turning news to HP.
Rival Dell Inc. had just snatched the top spot right back.
Although the companies' rankings flip-flopped in subsequent quarters, Dell
eventually cemented its top market share. That bolstered critics who had encouraged
HP to get out of the PC business and blasted the Compaq deal for increasing
HP's exposure to that tough market.
What a difference a few years and a new CEO make.
Earlier this week, roughly four years after the Compaq deal closed, HP said
that sales in its PC division grew 10 percent in the three months that ended
April 30, while Dell said its revenue grew by 6 percent over roughly the same
period.
And market researcher Gartner reported that HP's share of worldwide PC shipments
grew to 14.9 percent from 13.8 percent in the same period last year. Some of
the gain came at the expense of Dell, whose share slipped to 16.5 percent, from
16.9 percent last year.
"It's unbelievable," said Samir Bhavnani, director of research at
Current Analysis. "Dell missed the fact that people like HP and others
were getting their act together."
Over the past year, Dell has underestimated the success HP Chief Executive
Mark Hurd has had in cutting costs, said Roger Kay, an analyst at Endpoint Technologies
Associates.
Hurd was hired 14 months ago to replace the ousted Carly Fiorina, who had led
the charge to take over Compaq. Walter Hewlett, a son of an HP founder and then-board
member, claimed during the proxy battle the merger would "leave HP doomed
to be a leader in nothing."
But rather than hobble HP, the PC business is now reliably profitable -- as
are most of the sprawling company's divisions, which range from enterprise servers
and software to printers, cameras and televisions. Dell, though still the No.
1 PC maker, has seen its profits decline.
HP shares have gained 47 percent since Hurd's appointment in late March 2005,
while Dell's stock has lost 36 percent of its value. HP shares fell 46 cents
on Friday to close at $32.02 on the New York Stock Exchange. Dell rose 62 cents
to $24.57 on the Nasdaq Stock Market.
For years, Dell's unique business model of selling custom-built PCs through
direct sales over the Internet allowed the Round Rock, Texas, company to underprice
its competitors, who relied on more costly retail channels to move their goods.
"HP has done a lot of work on its cost structure, so it's able to be more
aggressive on prices and still turn out a decent margin," Kay said.
On Thursday, when Dell reported its first-quarter net income fell 18 percent,
CEO Kevin Rollins cited the tough market.
"The competitive environment has been more intense than we had planned
for or understood," he said.
HP is also benefiting from changes taking place in the PC business, analysts
said.
More sales these days are coming from consumers, many of whom have never owned
a PC before, and that has put Dell at a disadvantage because these buyers are
more reluctant to buy a machine online or over the phone.
"The consumers are a little more likely to want to see and touch what
they buy," said Moors & Cabot analyst Cindy Shaw.
She said Dell's direct marketing model also is a disadvantage in emerging markets
such as China and India, where phones and Internet connections are not as readily
available as they are in developed countries.
HP, which has extensive relationships with stores such as Best Buy, Circuit
City and retailers around the world, is in a better position to sell to such
customers than Dell, she said.
As HP and other PC makers have gotten better at matching Dell's low prices,
Dell has been slow to adapt, analysts said. With a few exceptions, Dell's machines
have remained relatively uninteresting, said Kay, while HP's computers have
started getting more stylish.
"The market has shifted," Kay said. "Everybody can make a PC
that works and that's cheap, so that's no longer a distinguishing characteristic."
HP's marketing, as it borrows themes from Apple Computer Inc., also is outperforming
Dell. Whereas Dell's commercials stress the type of processor and parts found
in the machine, HP's ads focus on how the PC can be used to play music, organize
pictures and carry out other tasks.
"As things have evolved Dell is very focused on selling hardware, and
HP and Apple are focused on selling solutions," Bhavnani said.