I wonder if IBM would truly agree that it was a bad move. Lenovo has done very well with the business, but even so we know the margins are razor thin. We know that PC sales are on a downward trend that likely is not going to be reversed. IBM got out, and I don't know that the company has any regrets about that.
I too feel that IBM has better plans for investment and generating revenue. I also feel that the real story here is about Dell; positioning itself well for success if/when the market segment expands. Delays in getting their ownership and management plans sorted out won't help their efforts any but the numbers look good.
IBM made the best decision as they have focussed on more lucrative business segment. I do not see the reason why they need to regret. The data analytics, Smart Cities, Walton etc are future markets that could be bigger than PCs.
If I were IBM, I wouldn't regret getting out. They got out in the first place because they couldn't make money, and the fundamentals that made them bail haven't changed.
PCs are commodities, with commodity pricing and razor thin margins, where the lowest cost producer wins. IBM has never been the lowest cost producer in any market. And the PC market is largely retail, and IBM has always been a B2B supplier, and never really understood retail. (Their attempt years back to have their own retail stores was a notable failure.)
Lenovo understands retail and can be cost competitive, so it's not a real surprise they reached the number one position.
So, Lenovo has come full circle to become the largest PC vendor in the second quarter. Can the company maintain this lead? Given the slowdown in China and the evidence that HP has some new systems in the pipeline, can HP get back on top?
In China, Lenovo is definitely one of the most respected companies among high-tech firms, with its investment in R&D and solid management. While Lenovo also has big ambition for mobile handsets, I think they have a good staying power in the PC market.
>> I think they have a good staying power in the PC market.
A recent piece about the company in one of the leading global magazines shows that they still believe that PC has a place in the future. This is a company that is efficiently managed and can generate innovations just as their Western peers.
>> Can the company maintain this lead? Given the slowdown in China and the evidence that HP has some new systems in the pipeline, can HP get back on top?
HP does not need to get back on top. They should focus less on number shipped to margin obtained. It is like airline business. You can fill 5 seats at the economy but one business class can make all the difference. Sure, Wall Street will like that the other carried 5 people while you have one passenger. But in your books, you look better. HP may be unable to catch Levono in volume, but they can still lbe more profitable in that sector.
I don't think HP can, and the question is whether they should try,
HP has the same problem that made IBM sell the PC operation to Lenovo and Dell go private. The PC market is largely saturated. New sales are few. Existing sales are replacements and upgrades. And PCs are commodities with commodity pricing and razor thin margins. Many of the things that used to require a PC have shifted to tablets and smartphones.
HP under Leo Apotheker was reportedly mulling getting out o the PC business. Meg Whitman reversed that. But HP's challenge is to make systems with enough added value that they can get a higher price and make a better margin. They need to move upscale, out of the commodity end of the market, and make enough money doing so to justify remaining in the market.
If they can move upscale, they may make money, but the volume is unlikely to change their market share enough to dethrone Lenovo.
If I'm HP, I'm thinking revenue and profit. Market share is pointless if you can't make money on it. All you get is higher losses.
Great points. HP'll never catch Lenovo now and it would be a mistake to even try. Love the point about market share being pointless if you can't make money. So very true.
It wouldn't shock me if HP reveresed itself again and was back to wanting to get out of the PC business. And by the way, if I'm not mistaken, HP came right out and said back in 2011 it would spin out its PC business and explore its sale. And, of course, Whitman eventually reversed that decision.
Emphasis on market share at the expense of revenue and profit reminds me of the old joke line "We lose money on every sale, but we make it up on volume!" Unfortunately, some folks seem to really believe you can do that.
It's a reason why I blow Bronx cheers at Apple vs Android market share discussions. Android has a larger total share, but it's spread over how many devices? If you want to make meaningful comparisons, and not compare Apples to oranges (sic) you need to look at share by device. Most manufacturers in those markets would kill to have a fraction of Apple's numbers.
It wouldn't shock me either if HP reversed itself again, but deciding to have another go at the PC market strikes me as more or less a necessity. Apotheker wanted to move HP somewhat the way IBM had moved years previously, and make more of its money from software and services. But I don't think HP is quite in the position IBM was. IBM made a strategic decision to make that shift back when they were still doing just fine in hardware, thanks, and saw it as wise to diversify. Making the shift is much easier if you aren't worried about erosion and losses in your core businesses and have the time and resources to take your time and do it right, organically growing software and services on top of your existing hardware business.
You're quite correct: HP did come right out and say so, and that was the decision Meg Whitman reversed.
I think the reason for deciding to reverse the decision to get out of the PC business was based on market perceptions. HP was in trouble, with a lot of people looking and seeing a company in disarray with a revolving door on the top executive office. For better or worse, HP is heavily identified with the PC market, and choosing to exit might have been seen as a nail in the corporate coffin, and further savaged an already battered stock price. The initial reaction to HP's announcement it was planning to get out was certainly negative enough.
Of course, now HP's challenge is to execute on a new improved PC strategy that will actually make them money. If they can't do that, they'll have no choice about bailing out.
In watching the industry over three decades, I've learned to "never say never" about who will dominate any category. I've also learned that no one company holds the lead forever, and that's probably especialy true now in the post-PC era. What's even more surprising to me is to see Asus so low on the list.
Who do you think will lead the PC trade five years from now? And do you think the PC market will be larger or smaller by then -- and by what percentage?
I have no idea who will lead the PC market 5 years from now, but I really haven't kept up on the players.
Part of it depends on what you count as a PC, and who you think is a player.
I think the PC market will be the same size or smaller. The problem is that it's saturated, Just about everyone who can use a PC has one. The market is replacements and upgrades. And a lot of the things that used to be done on PCs have migrated to tablets and smartphones. Many users who might once have gotten PCs no longer need one, because their use cases are better handled by other devices.
And PCs are fungible commodities. At equivalent specs, it doesn't largely doesn't matter whose name is on the box. The purchase decision revolves around price, and the lowest cost producer wins.
People like HP have troubles because they aren't the lowest cost producer, and their brand name alone won't let them charge a price premium and make a decent margin. Management has a fiduciary responsibility to invest corporate funds where they will get the best return, and the PC market isn't that place.
ASUS being that low isn't a huge surprise. The have their fingers in a lot of pies, and PCs are only one. I knew them as a mobo manufacturer before I ever saw an ASUS branded complete system. We have an AUSU laptop here. My SO's HP died, and she needed a replacement fast. The HP model she wanted was out of stock at the retailer she went to, but an ASUS model was available. She called me for an opinion, and I said "Buy it." She's been quite satisfied.
Lenova gains more market share, not because of making more shipment but because of keeping the shipment from falling too quick. The overall shipment in 2Q13 compared to 2Q12 has dropped by 10M. There is no doubt what a good job Lenova has been doing. Chinese firms have come a long way.
Now, the real challenge comes to Lenova. How can they keep the leadership position in PC market and, at the same time, turn itself into a more innovative and creative brand, like Apple has done?
Karen: While IBM made the conversion to a services company, let's not forget it still sells a lot of hardware and software as part of that. Can HP follow that path? Maybe. But it really happened in another era at IBM and that ship may have sailed. What I could see is the near elimination of any consumer products from HP...yes, even printers. That would be interesting.
The PC market has been a forever changing area. Startup companies are everywhere, and it relies on a lot of variables at the time to see who is leading or will be the leader in the PC market. From my point of view, think that everyone can play a key role in the PC market. Who will be the PC leader in terms of gross revenue? Well, it depends on who is willing to reduce their price to acquire and keep customers in this job market. But it will be interesting to watch over the next few months...these are exciting times to work in the technology field.
Gross revenues are one thing. Net profit is quite another. The problem for people making PCs is doing so profitably.
I suspect the model we may see going forward is the one used by Visio. They made their name in big screem TVs, and decided to leverage the brand in PCs.
Before they made the move, they spent a lot of time talking to Intel about hardware, and to Microsoft about software. They then went to their OEM partners and said "This is what we want to make, and this it the price point we want to hit. You tell us how to do that." They got their suppliers involved in the design phase. rather than doing design in house and handing plans to suppliers.
Visio itself is small, with about 400 people in the California HQ. They are serving as the general contractor coordinating the work. Their name is one the box, but other people actually make the systems. They are demonstrating that you don't need to be a huge company to play in that sandbox. And given the structure, if the move doesn't work, they can fold the operation and it probably won't kill them.
Charles: you're quite right. The PC market has been changing since it began. I really don't make much out of who is in the lead this for a month or two. But I certainly don't expect it to be HP five years from now. Lenovo may turn into the new HP...and that's not necessarily a compliment. We'll see.
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