H-P Wins Fans by Ceding Market Share to Dell
Sometimes being No. 1 isn't worth the effort. Hewlett-Packard Co. seems to have learned that lesson -- and investors could benefit.
The technology giant's personal-computer business has long faced the difficult choice between focusing on grabbing market share or on improving profitability. For much of the past two years, H-P has chosen the first approach, aggressively battling rival Dell Inc. to claim bragging rights as the top PC seller.
But in an important change, H-P is now backing off from seeking market share at all costs, or going all-out to unseat Dell from the top slot.
Normally, market-share retreats aren't anything to write home about. Yet this one has some investors applauding. Becoming less aggressive on PC market share "is a positive thing for H-P," says Sunil Reddy, portfolio manager of Fifth Third Technology Fund. Hugh Mullin , a fund manager at Putnam Investment Management, says H-P is doing "the right thing for shareholders."
The reason for the applause: The Palo Alto, Calif., company is now making clear that profits are its top priority. "We won't sacrifice profitability for market share," Carly Fiorina, H-P's chief executive, said at a meeting with analysts late last year. Her comments are echoed by Vyomesh "VJ" Joshi, who heads the company's highly profitable printer unit and who last week also was put in charge of the PC business. "The focus is first going to be on the bottom line," he says.
The dogfight in PCs has relentlessly driven down hardware prices and profit margins, pushing some companies out of the market altogether. H-P, however, has recently bucked the trend, maintaining an average selling price for its computers of around $1,200 for the past two quarters, according to research firm Gartner Inc. H-P says its PCs' average selling price has stayed constant for the past year.
By contrast, H-P lowered prices throughout 2003 and part of 2004 to match or undercut Dell. The strategy yielded some bragging rights for H-P -- it beat Dell as the top seller of PCs for two quarters out of the past nine -- but it also resulted in dismal profits. Indeed, since mid-2002, the operating profit of H-P's PC business hadn't until recently exceeded 1% of sales.
Now that H-P is putting less weight on being the world's top seller of PCs, its profit margins are inching up. In its most-recent fiscal quarter, which ended Oct. 31, H-P's operating profit margin for PCs rose slightly to 1.2%. That helped -- albeit modestly -- to offset declining margins in other areas of H-P's business, notably in its enterprise-computing unit, fund managers say.
"Focusing on profitability leads to slower growth, but it also leads to more consistent results and performance," said Marty Shagrin, an analyst at Victory Capital Management, which owned more than four million H-P shares at the end of September, according to Securities and Exchange Commission filings. "What's the point of being in a business if you can't make any money?" asks Mr. Shagrin, who doesn't rate the stock.
Improved PC profits aren't yet showing up in H-P's stock. In 2004, H-P shares declined around 9% even as the tech-heavy Nasdaq Composite Index finished the year higher. After hitting a 12-month low in August when H-P reported disappointing financial results, the company's stock has risen modestly. On Friday, ahead of yesterday's holiday for Martin Luther King Jr. Day, the stock rose 12 cents to $20.07 in 4 p.m. New York Stock Exchange composite trading, giving the company a market value of slightly more than $60 billion.
Stock Is Cheap
But investors say the picture is bound to change if H-P can improve PC profitability in a sustained manner over the next few quarters. Mr. Shagrin, for one, contends that the stock is so cheap -- trading at just 11 times projected earnings in the next 12 months -- that any improved profits will likely be rewarded. Dell, in contrast, is trading at 25 times earnings in the next 12 months, with a market capitalization in excess of $100 billion.
Going after both market share and profits is next to impossible with the constant downward pressure on PC prices. Only those players with the leanest business structures -- particularly Dell, which stresses direct sales on the Web and over the phone -- have been prospering lately. H-P, which sells through retailers and other middlemen in addition to direct channels, has a built-in cost disadvantage.
H-P executives began emphasizing PC profits late last year, marking a change from the message that began when the company bought Compaq Computer Corp. three years ago, sharply expanding its PC business. While Ms. Fiorina said at the time that all of H-P's businesses would have to be profitable, she also drew attention to the battle with Dell. H-P was in a "two-horse race," Ms. Fiorina frequently said. Bob Wayman, the company's chief financial officer, told Wall Street analysts the company was content to sell PCs "at a very modest profit for now."
That changed after H-P missed Wall Street earnings estimates in August, says Deborah Nelson, vice president of marketing in H-P's personal-computing unit. Ms. Nelson notes that H-P is now a "solid No. 2" in PCs and "feels very comfortable with that market position."
In a sense, H-P has been forced to accept that role. Since early 2004, Dell has topped H-P's PC market share by several percentage points. As of the third quarter of 2004, for example, H-P's world-wide PC market share was 15.6%, compared with Dell's 17.8%, according to research firm IDC. When PC market shares for 2004's fourth quarter are released by Gartner and IDC this week, Dell is expected to maintain its No. 1 position, analysts say.
The Right Balance
H-P's Ms. Nelson says the results in the past few quarters reflect the fact that customers perceive Dell's PCs to be less expensive, and because H-P had holes in its corporate PC lineup. H-P is now remedying those weaknesses by educating consumers on how competitive H-P's PC pricing is. H-P also plans to introduce new notebook computers for corporations over the next few weeks that will complete its lineup, she says.
Focusing on profitability has its risks, of course. H-P could lose so much PC sales volume that it might not make enough revenue to cover the fixed costs of its business.
Jason Maxwell, an analyst at Trust Company of the West, notes that several technology companies have tried to strike the right balance between PC profitability and market share, and failed. International Business Machines Corp., for one, struggled for years to reach that equilibrium in its PC business, Mr. Maxwell said. In the end, though, IBM gave up the fight. Late last year, it agreed to sell off its PC business to Chinese computer company Lenovo Group Ltd. According to SEC filings, Mr. Maxwell's firm owned 3.9 million H-P shares at the end of September.
惠普不再与戴尔争第一
努力争第一，有时反而得不偿失。惠普(Hewlett-Packard Co.)似乎已明白了这个道理，这种觉醒将令投资者受益。
长期以来，惠普的个人电脑业务就一直在集中精力扩大市场占有率和提高利润率之间做艰难抉择。近两年里不少时间，惠普都选择了前者，全力与竞争对手戴尔公司(Dell Inc.)争夺个人电脑行业销量第一的地位。
但现在，惠普作出了一个重要决定，决定停止不惜一切代价扩大市场占有率的做法。
市场占有率下降这种事一般都不值一提，但这次赢得了一些投资者的击掌赞赏。Fifth Third科技基金的投资组合经理莱迪?苏尼尔(Reddy Sunil)表示，停止不惜一切代价扩大市场占有率的做法，对惠普是有利的。Putnam Investment Management的基金经理休?姆林(Hugh Mullin)表示，惠普的这个决定对股东是正确的。
这个决定受到欢迎的理由：惠普现在清楚地表明，利润是发展的首要任务。“我们不会牺牲利润率来换取市场占有率，”惠普首席执行长费奥瑞娜(Carly Fiorina)去年在一次分析师会议上表示。她的这番言论得到了惠普高利润率的打印机业务的主管佛米什?乔希(Vyomesh 'VJ' Joshi)的响应，他指出，“关注点首先是利润”。乔希上周又刚刚被任命为惠普个人电脑业务的主管。
个人电脑市场的混战已无情地推低了硬件价格和利润率，并使得一些公司无奈地退出了这个市场。但惠普逆势而动，研究公司Gartner Inc.的数据显示，近两个季度其电脑的平均售价维持在了每台1,200美元左右。惠普自称，其个人电脑平均售价一年来一直保持不变。
与之形成对比的是，2003年全年以及2004年部分时间里惠普的大降价，降价的目的无非是为了跟进戴尔的降价，或比戴尔更有价格竞争力。这项策略为惠普带来了一些可资夸耀的资料──近9个季度它有两个季度超越戴尔，位居个人电脑销量第一，但也导致了利润的滑坡。自2002年年中至最近以前，惠普个人电脑的经营利润很长一段时间都超不出销售额的1%。
现在惠普不再强调要成为个人电脑全球销量的第一，其利润率正在小幅上升。截至10月31日的最近财政季度，惠普个人电脑业务的经营利润率已小幅升至1.2%。基金经理们表示，这有助于抵消惠普其他业务领域利润率的下降，特别是企业电脑业务。
“关注利润率会导致增长放缓，但也带来了更一贯的业绩和表现，”Victory Capital Management的分析师玛替?夏格林(Marty Shagrin)表示，“如果不挣钱，一项业务还有什么意义呢？”美国证券和交易委员会(Securities and Exchange Commission, 简称SEC)的文件显示，截至去年9月底，Victory Capital Management持有400多万股惠普的股票，夏格林不对惠普的股票进行评级。
个人电脑业务利润的改善，尚未体现在惠普的股价走势中。2004年，惠普股价跌幅为9%左右，尽管以科技股为主的那斯达克综合指数全年收高。在去年8月令人失望的财务报告导致惠普股价创下12个月低点后，该股已有小幅上涨。上周五在纽约证交所，该股涨12美分，收于20.07美元，市值稍高于600亿美元。
但投资者们表示，如果惠普未来几个季度能持续改善个人电脑业务的利润率，这种状况必将改变。比如，夏格林认为，该股估价太便宜了，股价仅为未来12个月预期每股收益的11倍，只要利润有改善，就会反映在该股股价上。相比之下，戴尔股价是未来12个月预期每股收益的25倍，市值为1,000亿美元。
市场占有率和利润率两者兼收，似乎不太可能，因为个人电脑价格不断承受下跌压力。那些业务结构最为精简的公司，特别是强调通过网络和电话进行直销的戴尔，近来境遇不错。而惠普这样除了直销渠道，还通过零售商或其他中间商销售的公司，具有内在的成本劣势。
去年年底，惠普的管理人士开始强调个人电脑业务的利润问题，与三年前该公司收购康柏电脑(Compaq Computer Corp.)时大幅扩张个人电脑业务的基调有了转变。虽然费奥瑞娜当时表示惠普的所有业务都必须盈利，她也时常让人们想起惠普与戴尔的竞争。费奥瑞娜经常说，惠普与戴尔是两强相争。惠普首席财务长鲍勃?威曼(Bob Wayman)也曾告诉华尔街分析师，公司“目前满足于以非常微薄的利润出售个人电脑。”
这一切在惠普去年8月份未能实现华尔街的业绩预期后发生了改变，惠普个人电脑子公司的营销副总裁德伯拉?内尔森(Deborah Nelson)表示。内尔森指出，惠普“目前在个人电脑行业的老二位置非常稳固”，公司对此感到满意。
从某种意义上说，惠普不得不接受这个现实。自2004年年初以来，戴尔的市场占有率一直比惠普高几个百分点。比如，根据国际数据公司(IDC)的数据，2004年第三季度末惠普全球的个人电脑市场占有率为15.6%，而戴尔为17.8%。分析师们预计Gartner和国际数据公司本周发布的2004年第四季度个人电脑市场销售数据，仍将由戴尔拔得头筹。
惠普的内尔森表示，过去几个季度的业绩反映了一个事实，即客户们认为戴尔的个人电脑价格相对便宜。由于惠普企业用个人电脑的产品系列不完全，惠普正在通过教育消费者“惠普个人电脑的价格是如何具有竞争力”来弥补不足。同时，内尔森透露，惠普还计划未来几周推出新的企业用笔记本电脑，以完善产品系列。
当然，关注利润率也有其风险，由此惠普的个人电脑销量可能会有太多下降，以致于都无法有足够的收入支持企业的固定成本。
Trust Company of the West的分析师杰森?麦克斯威尔(Jason Maxwell)指出，有好几家科技公司平衡个人电脑业务利润率和市场占有率的努力都失败了。国际商业机器公司(International Business Machines Corp., 简称IBM)就是一个例子，该公司曾努力多年试图实现个人电脑业务的发展均衡，但最后还是放弃了，去年年底，IBM同意将个人电脑业务出售给中国电脑公司联想集团(Lenovo Group Ltd.)。据SEC的文件，截至去年9月底，麦克斯威尔所在的公司持有390万股惠普股票。
