HP still top dog in hardware but sharks are circling

By Stuart Finlayson

Feb 22, 2005: Whoever is chosen to succeed Carly Fiorina as CEO of Hewlett-Packard will have a fight on their hands to maintain the company's position as the world's biggest IT hardware manufacturer, with a cost-cutting strategy almost certain to be implemented to remain competitive.

In the wake of the release of HP's quarterly earnings results, which were published last week, Gartner analyst Martin Reynolds commented: "HP's financial performance is stable, but not strong enough to head off the threat from Dell and other competitors. Look for significant cost-cutting efforts once a new CEO takes over."

While HP's recent earnings report demonstrated a level of stability across the company as a whole, IT hardware shipments, particularly storage hardware, must increase if the company is to remain at the top of the tree.

"The company is presently the largest manufacturer of IT hardware in the world, with $13.5 billion worth of hardware shipments in the quarter. But Dell came a very close second during the same period, and is growing faster and showing more profit," observed Reynolds.

Reynolds added that faced with intense competition from Dell - and the emerging threat of China's Lenovo Group, which recently acquired IBM's PC business - HP will eventually have to undertake significant cost-cutting efforts, probably from non-revenue-bearing areas of its business. These cuts will certainly be accompanied by challenges to the business units to increase revenue. However, Gartner does not expect HP to sell off any of its lines of business, or make major changes in product portfolios, market strategies or local execution, in the short term.

Gartner's advice to customers is not to change your short-term plans for purchases of HP products, but to exploit HP's need to maintain short-term revenue and counter competitive threats by negotiating more favourable pricing.

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