It's been an amazing couple of weeks kicked off by Acer delivering poor results, followed by Dell lowering its forecast for sales in 2012, then a boost with good revenue figures from Lenovo, but with a reported 46% coming from emerging markets, finally the real kicker of news from HP. After talking up their competitive positioning and innovation around webOS, developed from their purchase of Palm and its operating system, suddenly six months later with the first HP tablets just bought by proud owners, HP suddenly states it will all be scrapped. And just to add to the surprise, HP also announced its plans to 'hive off' its PC division, apparently with a preference for someone to buy it.
As HP is generally shown as the number one player in the PC market it can't be lack of volume or any of the reasons normally given, so what is going on in the industry? And why does this feel like turning the clock back to the moment when IBM made a similar decision, also apparently at a time of strength? Well certainly the PC market has weakened due to the general economic situation and the alleged splitting of the market dollars between tablets, smartphones and gaming boxes, but to what extent are these things really linked? Because the answer to this might be the answer to what this means to the CIO with upgrade cycles and preferred supplier focus with one of the major players.
Some time ago I wrote a blog about being able to tell whether a person was a back office employee using a desktop machine to process the work sent to them, or a front office person engaged with the market, customers, etc. in which case their tools would more likely be smartphones or tablets deployed in mobility environments. In the current 'do more for less' environment the pressure is on traditional IT to provide the 'less' as its basic function is to automate and cut operating costs, and the challenge in 'do more' is around new business uses and requirements around new technologies. Put another way, PCs are distinctly on the side of cost cutting where if anything the demands on a PC specification-wise are at least stable if not falling, so the replacement cycle can be deferred. Even when replacements are due the enterprise buyer will use the volume to extract a bargain price, and the impact of the Google Chrome PC offering has provided a new leverage point for ownership.
Contrast this with the prices that Apple gets for its PCs, and it's not just the higher prices, it’s the higher margins that go with them, plus the brand loyalty that sees the purchase of the iPhone and iPad too, as part of the whole Apple experience. There is no obvious enterprise cost value agreement that could support this but for the user spending their own money, the ownership and usability experience is worth the extra money. And here is the real issue for HP that was in the 'small print' of their announcement, it was the choice between being a player in the consumer market as well as in the enterprise market, a current situation that actually splits their volume market leverage in two and increases their costs by two different sets of channels, support services, etc. Increasingly, those parts of 'personal computing' that make money are in the hands of the user to decide what to buy and with the well established Apple and the deep pockets of the new entrant Google, that's quite a challenge, and that's before we mention what Microsoft might bring to this market with its even wider range of devices and supporters.
The alternative option is to focus on enterprise buyers, in which case it's a very different game and reading the HP announcement carefully this seems to be at the heart of their moves, which is to compete with IBM in the mainstream enterprise market, a market which they know well and have a more stable customer base on which to build. The difference is of course that IBM made the choices and re-designed their business model back in better times so HP has some catching up to do on the business mix.
Having started by commenting on what buyers are not buying then its equally clear what they are buying as IBM’s results show with their software business powering ahead. But the mix of software that makes up the famous IBM Middleware portfolio has substantially changed over the last two years with integration and management of real time information, mobility devices, etc all making up a large part of what is on offer and in demand by enterprises.
HP has a good software portfolio too, and with its focus on ‘converged infrastructure’ a lot of its products are in the sweet spot of demand, but the software operations have always seemed to take the back seat to the hardware business. With a new CEO from a software background at SAP the opportunites and possibilities may be clearer, together with a business model, approach to the market, and management objectives. Viewing the announcement in detail, and understanding its refocusing on the enterprise together with offering the software that HP customers will be needing to support their enterprises new business demands should provide some answers and comfort for CIOs with an HP investment to consider.
However the big unanswered question for now is what happens to the PC business.