The fourth-largest personal computer maker by shipments projected a loss for
the year. Only a couple of weeks ago, Mr Apotheker announcedthat
Hewlett-Packard, the company he runs, would be getting out of the PC
business, in which it is the world leader. Exit has to be easier than
competing with companies such as Acer and China’s Lenovo, the third-largest
player, which are built to get by on operating margins of 1-2 per cent (in
good times).
HP’s own PC business is not in danger of making losses. It reported a 6 per
cent operating margin in the first nine months of this year, representing a
peak. In 2005, the unit reported a 2.5 per cent margin and profitability has
risen since on supply chain efficiencies. Dell, the worldwide number two,
does not break out product margins, but it is safe to think its PC margins
are closer to HP’s than to Acer’s.
Are PCs a large ($250bn in global sales) and sluggish market doomed to become
a battleground for companies willing to compete primarily on cost? In a
word, yes. Annual revenue growth, in dollars, has averaged under 3 per cent
in the past decade, according to IDC, with price declines offsetting unit
growth. So far, this year is about average; earlier optimistic shipment
estimates are being slashed. Tablets are much stronger, but Apple has an
iron grip on this market for now and is taking share in high-end PCs.
So why stay in the business? Tech conglomerates, including HP and Dell, used
to argue that selling PCs provided supply-chain muscle (the same components
that go into PCs are found in higher-margin products such as servers) and
added clout to the sales effort, since customers could get a full package of
hardware, software and services. Now HP, with all its PC strengths, is
giving up. That suggests these reasons are no longer compelling enough to
justify hanging around in a market entering the final stages of
commoditisation.
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