Can HP stay on top of the PC market?
By Nicole Kobie
Posted on 15 Feb 2013 at 08:45
Another CEO. Another multibillion-dollar write-down. More negative headlines. Once again, HP appears to be in dire trouble. But do such high-profile, high-level woes hurt HP’s key business?
HP is the largest PC maker in the world – although after six years at the top it’s barely hanging on to the lead over Lenovo.
But if the overall challenges in the PC market – slowing sales, mobile competition, the weak economy – weren’t enough to contend with, HP seems intent on causing as much trouble for itself as possible.
In November, Meg Whitman – the company’s third CEO in two years – announced the company was writing down $8.8 billion from its 2011 acquisition of the UK software firm Autonomy, claiming accounting improprieties in the deal overseen by Léo Apotheker, Whitman’s predecessor.
The PC business is a double-edged sword
Fiercely contested by Autonomy founder Mike Lynch ahead of what is likely to be a bitter court battle, this is only the latest drama at HP.
As well as its high turnover of CEOs, it’s had to contend with the shutting down of webOS – highlighting its struggle to be a business services firm as well as a consumer hardware manufacturer.
HP’s latest full-year results don’t make for cheerful reading, with losses of $12 billion compared with $7 billion profit the previous year.
It wasn’t helped by $18 billion in write-downs for Autonomy and Compaq, as well as for parts of its Services division; sales were also down across the board, with PCs down 14% and printers sliding 5%.
Only software bucked the trend, growing 14%. Looking at these figures, it’s easier to understand Apotheker’s decision to buy Autonomy for $11 billion and spin out the PC group.
On the other hand, half of HP’s $120 billion revenue was from the Printing and Personal Systems (PPS) group, with $35.7 billion from PCs and $24.5 billion from printers, worth a total $5.3 billion in profit.
Software contributed a mere $827 million. PCs and printers keep the money coming in, but software is the only division that’s growing, leaving HP walking a tightrope between the two.
PC sales on the slide
This situation has become more precarious as PC sales slide. IDC’s market analysis takes in all "smart connected" devices – comparing desktops, laptops, tablets and smartphones. Under that measure, HP falls to fourth place, because it’s "virtually non-existent in the mobile space".
Find out moreUK PC sales tumble by 20%
iSuppli analyst Craig Stice said HP faces the same challenge as other PC makers: tablets. HP is re-entering the tablet market, but with Windows instead of webOS.
Stice warned hybrid laptop/tablet prices are still too high, especially compared to cheap media tablets. In other words, margins are going to get tighter; HP’s PC margins are currently 3.5%, printers are steady at 17.5%, but software brings in 27.5%.
And that’s one reason Stice thinks the PC division is healthier as part of HP. "The PC business is a double-edged sword," he told PC Pro. "It’s a big revenue producer… its PC revenue was a third of its earnings. The sharp side of the sword is the margins. It’s an extremely cut-throat business out there. Especially when the economy’s struggling, there tend to be pricing wars."
Too quick with Palm
Personally I thought the TouchPad was a decent 1st gen tablet. They were either far too quick to abandon the market or far to quick to enter enter it. Either way, it was a spectacular cock-up.
By JStairmand on 15 Feb 2013
Your list of write-downs is rather telling and shocking. To me, it really shows how difficult it must be to find a good company to take over.
Has anyone ever explained how this string of extraordinarily bad purchases from HP happened?
By TheoB on 15 Feb 2013
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