HP should stay in the PC business

FRAMINGHAM (09/30/2003) - Eighteen months after the largest merger ever in the technology industry, some analysts have grown impatient waiting to see if Hewlett-Packard Co. will reign supreme in the PC market. The thought is, if HP can't compete against Dell Inc., it should pull out of the PC business, in effect ceding the market to Dell.

Joseph Beaulieu, computer analyst with the financial advisement company Morningstar, doesn't mince words, saying, "It would probably in the long run enhance (HP's) profitability to get out of (the PC business)."

Even Mike Elgan, a spokesman for the HP user group Interex, boldly proclaims, "HP should get out of the low-cost, low-margin, low-innovation PC business and focus all its energies on product and service areas where HP's technological superiority matters."

The sting of such comments prompted HP to issue a July press release in which Jim McDonnell, a vice president in the Personal Systems Group, said: "We're in the battle for the long term, we're providing great products at aggressive prices to our customers, and we look forward to continuing to build on our momentum in the second half of the year."

I'm glad to see HP reaffirm its commitment to the market. HP leaving the PC business would be bad for the industry and a real loss for customers. Why? I can sum it up in four words: innovation, competition, simplicity and choice.

When it comes to developing new products for the commercial and consumer sectors, HP is an innovator. In 2002, HP was awarded 1,385 U.S. patents, making it No. 9 on the list of top companies receiving patents from the U.S. Patent and Trademark Office. Not all of these patented technologies made their way into HP's PC products, of course, but the fact remains that HP spends a significant amount of money on research and development for its PC products, especially when compared with Dell. If HP exits this market, we'll lose some very innovative thinking.

Then there's the competition factor. IDC reminds us quarterly of the tight race for PC market share. When HP recently announced a slight rise in its worldwide market share, Dell responded by lowering prices. If HP left the PC market, Dell wouldn't feel the pressure to continuously lower prices, and customers would have little leverage to get Dell to strike a bargain. Such competition is healthy for the market, forcing the players to become more efficient to stay in the game.

Next, there's simplicity. Many companies like to limit the vendors they deal with, especially when it comes to computer technology. For those who get their enterprise systems from HP, they can streamline their purchasing and support by buying HP PC products, too.

Finally, customer choice is still important. The sad fact is that healthy competition in the PC market is dwindling. The market has already consolidated too much, becoming basically a four-horse race (Dell, HP, IBM and "white box" or reseller brand). I miss seeing companies such as AST Research, Leading Edge and Wyse in the PC market. And I'm thrilled that Gateway just signed a deal to provide the U.S. Defense Logistics Agency with tens of thousands of new computers over the next few years. Gateway has been perilously close to being forced out of the PC market, and this new contract might be the boost it needs to stay in.

So HP's Personal Systems Group has suffered through a few dismal quarters. That's unfortunate, but not reason enough to quit the market. Maybe the company just needs to reevaluate its game plan, as IBM did a few years ago when it dropped out of the consumer PC market. Instead, IBM's PC Division found its niche and is thriving today with commercial customers that buy IBM enterprise systems and services.

Beaulieu and Elgan are looking at HP's bottom line and not necessarily what's good for customers. I'd be very sad if HP gave up trying to compete profitably in the PC market. Then we might be hearing, "Dude, yer getting a Dell . . . because there's nothing else to choose from."

Musthaler is vice president of Currid & Company, a Houston technology assessment firm. She can be reached at linda@currid.com.

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