HP Will Lose PC Crown to Lenovo but Remain a Leader: Analyst

HP is expected to lose its PC crown to Lenovo soon, but its more effectively reorganized PC unit, its relationship with Microsoft and its commitment to China will help it to remain an industry leader, according to TBR.

Hewlett-Packard is likely to lose its title as the world€™s top-selling PC maker to Lenovo during the second or third quarter of this year. Still, HP will generate larger profits than Lenovo, and both companies will execute well going forward, according to a May 21 report from Technology Business Research (TBR) analyst Ezra Gottheil, following HP€™s Global Influencers Summit in Shanghai earlier this month.

Gottheil came away from the event believing that HP has got its cart back on the tracks, after a leadership shake-up and the proposed possibility of spinning off its PC unit. The company is also looking at layoffs of between 25,000 and 30,000 employees, which would make it among the top 10 largest layoffs in the history of the IT industry. And while it managed to stay ahead of Lenovo during the first quarter of 2012, it posted growth between 3 and 4 percent during the quarter, according to figures from IDC and Gartner, while Lenovo managed 28 percent year-on-year growth by Gartner's count and 44 percent by IDC's.

While HP may not know exactly in which direction to move that cart, TBR believes it€™s now much better organized to figure it out.

€œHP PCs are now better designed and better engineered,€ wrote Gottheil. €œMore importantly, the HP personal computer organization is now aligned around market segments instead of form factors, as in the past, which will lead to better targeted products and clearer product marketing communications.€

The reorganization of its computing segment€”the Personal Systems Group has merged with the Imaging and Printing Group to form the Printing and Personal Systems group, or PPS€”is one contributor to Gottheil€™s positive outlook on the brand. Another is its relationship with Microsoft€”which Gottheil calls HP€™s name for its tablet and ecosystems strategy.

HP plans to rely on Windows 8 for its tablet OS, as well as on Microsoft for its personal cloud ecosystem€”a good move, believes TBR, since €œAndroid has not emerged as a significant player in business tablets and Google€™s ecosystem is weak for business.€

HP€™s lack of handsets, and tablets only with Windows, leaves it out of the consumer space until Microsoft finds traction with consumer tablets, which is exactly the opposite of Lenovo€™s strategy to address handset, tablet, TV, gaming consoles and other markets. However, TBR doesn€™t expect this will hurt HP€™s PC or printer businesses, despite the €œhalo effect€ companies such as Apple enjoy across segments.

Instead, HP is staying focused on the enterprise and the consumerization of IT, which means building PCs that people would want at home€”machines that emphasize good design, have a long battery life, low weight and instant-on capabilities€”while including the features IT needs.

The third major factor, said TBR, is China, where HP held its event for good reason.

€œHP announced that this year China will surpass the current leader in PC consumption, the U.S. By 2016, HP expects Chinese PC consumption to double that of the U.S.,€ states the report. €œThe company established a PC development facility in Shanghai specifically to address the Chinese market, and will create models specifically for China if it will help sales in China.€

HP CEO Meg Whitman, in a closing keynote at the event, said HP is €œabsolutely committed€ to being a great partner to the Chinese government and to Chinese businesses.

€œWe are committed to bringing the most innovative, highest-quality products, services and solutions to all of our customers, and we are fully committed to our PC and printing business,€ added Whitman, who came into the CEO role in September 2011 and settled the matter of what to do with HP€™s PC division.

Still, TBR noted, even if the PSG were spun off, it€™s the largest PC vendor and the most profitable Windows vendor.

€œWhile Lenovo is likely to pass HP in unit shipments soon,€ added Gottheil, €œHP will remain a dominating PC industry leader.€

HP is scheduled to announce the results of its most recent fiscal quarter May 23.