HP Inc. Adjusts to the 'New Normal' in PC Market

By Jeffrey Burt  |  Posted 2016-05-27 Print this article Print

CEO Dion Weisler says the company is looking to bring expenses in line with a declining market while driving innovation to boost sales.

HP Inc. is continuing to adjust to what CEO Dion Weisler is calling the "new normal" in a PC market that continues to contract and to change in hopes of reinvigorating sales.

For HP, that means cutting costs while driving innovation around new form factors, and balancing the drive to focus more time and effort in the premium PC and printer markets with the need to keep a strong presence in the lower-cost system space. All this comes with the expectation that the global PC market may see an upswing later this year and into 2017 as new systems hit the market and businesses and consumers begin to replace their older PCs, many of which have been around for four or more years.

Much of the tension was seen this week when HP released its latest quarterly financial numbers, which showed an 11 percent year-over-year decline in revenue—to $11.6 billion—amid continued weakness in the PC space and struggles with the company's printer business. HP officials are countering that with an aggressive cost-cutting strategy that they say will save $1 billion in expenses this year and includes up to 3,000 job cuts, with 1,200 employees already exiting over the past two quarters.

Despite the numbers, Weisler was upbeat on a conference call with analysts and journalists May 25 to discuss the quarter. Revenue was within the company's expectations, he said, and surpassed financial analyst expectations. In addition, HP in the past six months has released more than a dozen new PC and printer products, including the Elite x3 smartphone that can use docking modules to work like a PC, the ultrathin Spectre laptop and a new Chromebook. The company also launched a number of new business printers as well as a commercial 3D printing system.

Weisler said HP performed well on its three key objectives: slashing corporate costs, offering "rational" pricing for its core products to offset the sharp declines in average selling prices in the market and shifting its focus toward growth areas.

"A key to success in competitive markets is product differentiation and innovation," Weisler said, according to a transcript on Seeking Alpha. "It's thrilling to see the innovation coming out of HP supporting our core growth and future initiatives."

Jack Narcotta, senior analyst with Technology Business Research, wrote in a research note that HP stands to gain in some parts of the market, but that the company is still plagued by many of the market forces that have been there since before the breakup of Hewlett-Packard into two entities more than six months ago. Narcotta wrote that he expects HP "to gain momentum in the more lucrative segments of the computing devices and printing marketplaces by focusing on premium PCs, higher-performance Chromebooks and printing segment-wide advances in commercial printing technology. However, the company’s financial performance contrasts with the optimism touted by executives."

The challenge will be "crafting the right mix of products and strategy that enables it to reverse declines instead of enduring them," he wrote.

While the company has seen growth in its commercial notebooks and mobility businesses and is making headway in the growing premium consumer space—all of which will help drive up profit per unit—HP still has to grapple with a struggling global PC market and other product segments, Narcotta wrote.



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