Emphasis on designs and game machines helps bolster revenue at
hardware maker
By Jay Greene
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 22, 2018).
Shortly after Dion Weisler took over Hewlett-Packard Co.'s
computer business in 2013, he assembled his charges to survey
nearly 40 of its PCs, a hodgepodge of styles, sizes and colors
splayed out in a conference room. He wanted the employees to feel
embarrassed.
"There was nothing quite as telling as having the whole
portfolio on a great big table and forcing our team to look at it,"
said Mr. Weisler in a recent interview. He became chief executive
of HP Inc., the personal-computer and printer business that emerged
from the carving of Hewlett-Packard into two pieces in 2015.
By focusing on sleeker designs and high-performance game
machines, HP managed to boost revenue and gobble market share from
smaller competitors even as the PC market shrank. The bet has paid
off so far, sending HP's stock up 77% since the company's
split.
With the stagnant PC market largely condensed into a handful of
giants, the questions for HP are how long it can make the formula
last and what comes next.
HP is set to report fiscal second-quarter results on May 29.
Analysts surveyed by S&P Global Market Intelligence expect
revenue rose 10% to $13.58 billion, with adjusted per-share
earnings up 20% at 48 cents.
When Hewlett-Packard split in 2015, pundits figured HP Inc.
would be the runt of the litter, while its sibling Hewlett Packard
Enterprise Co. was freed to focus on more attractive markets such
as selling corporate technology services. In the U.S., only Apple
Inc. thrived selling hardware and it did so innovating with
smartphones.
Mr. Weisler was stuck in shrinking markets with a musty hardware
brand at the same time much of tech's growth was generated by
internet companies selling services, such as Facebook Inc. and
Alphabet Inc.'s Google. Today, even Apple emphasizes the growth of
its services businesses.
Unio Capital LLC, which holds $5.2 million in HP stock, or about
4.5% of its portfolio, believes there is still vitality in the PC
business as employers value gains in worker productivity, said John
Allison, the New York asset-management firm's CEO. "We think this
is a company that is reinventing itself, so the growth is going to
come," he said.
Even though the number of PCs shipped annually world-wide has
dropped 9.1% since Hewlett-Packard's split, HP's annual PC
shipments have climbed 5%, according to market-research firm
Gartner Inc. Last year, HP leapfrogged Lenovo Group Ltd. to become
the top PC seller in the world with 21% share of the global market,
up from 18.2% in 2015.
In that time, HP's annual revenue from its PC business has
increased 6% and its operating profit has climbed 9%, helping to
buffer an 11% drop in revenue and an 18% tumble in operating profit
at its printing business.
A reckoning could still be in store. When Mr. Weisler took over
the PC business, the top five PC makers held 59% of the global
market, according to Toni Sacconaghi, an analyst at Sanford C.
Bernstein. By last year, it was 71%. HP's top PC rivals -- Lenovo,
Dell Technologies Inc., Asustek Computer Inc. and Acer Inc. -- have
all expanded their market share as well. Mr. Sacconaghi said he
expects the major PC makers to seize about 85% of the market share
"over time."
HP's market-share gains will be difficult to sustain, said
Mikako Kitagawa, an analyst at Gartner, which expects PC shipments
to be flat in 2018 and decline about 6% by 2021. The company's
"real success will be measured in 2018," when results are compared
with the prior year's strong growth, she said.
Mr. Weisler acknowledged consolidation will continue, but he
expects HP to take share from bigger rivals.
To do so, HP started using premium materials to make its PCs
more appealing and introduced technologies such as one that dims a
laptop screen's visible light when viewed from an angle, so nosy
neighbors can't snoop.
Much of HP's success comes from making PCs "sexy" again,
including laptops that convert to tablet computers, said Scott
DeTota, a vice president at CDW Corp., which sells tech products to
businesses. At CDW, HP surpassed Lenovo in PC sales last year as
well.
"It's no longer your traditional stale-looking laptop," Mr.
DeTota says.
Mr. Weisler said he has focused HP less on "empty-calorie"
entry-level PCs and toward higher-margin businesses such as game
machines, a market HP had abandoned years ago where buyers pay
premiums for powerful rigs. HP launched a new brand, Omen, in 2016.
An Omen PC with the priciest components can cost more than
$6,000.
Game PCs are a $1 billion-a-year business for HP, Mr. Weisler
said. That is still a relatively small piece of HP's overall PC
business, which totaled $33.37 billion in its latest fiscal year.
But to Mr. Weisler, it represents the kinds of moves HP needs to
make in a contracting market.
HP also has profit from printing, its other legacy business, as
a financial cushion. In the latest fiscal year, the printing
business posted $18.8 billion in revenue, about 56% the size of
HP's PC business. Operating profit of $3.2 billion was nearly
triple that of the PC segment.
Still, "it's another challenged market," Mr. Sacconaghi said.
"It's really unclear that people are going to print more going
forward."
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
May 22, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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