Cautionary Notes from Hewlett-Packard
While HP has been enjoying a tremendous success over the past two years, as it has skyrocketed to the Number 1 position in worldwide PC market share, some of those gains are starting to come at a price. Increases in revenue from HP's personal computer business -- via its Personal Systems Group -- came during a continued bloody price skirmish with rivals including Acer and Dell, and the numbers are showing. In its 10-Q, HP writes:
HP executives say they don't expect the component cost declines to continue.
Arguably one of the strongest pieces of HP's business is its Imaging and Printing Group. And while HP continues to maintain, far and away, the market share lead in printers and supplies, and while the company benefited from strong increases in unit sales this area, a good part of its net revenue on a constant currency basis showed strength "due primarily to the movement of the dollar against the euro." And, HP wrote, "The increase in consumer hardware net revenue for the third quarter and first nine months of fiscal 2007 was attributable to increased unit volumes, improved average revenue per unit performance and a mix shift from single function products to All-in-Ones, all of which were partially offset by the continued shift in demand to lower priced products and strategic pricing decisions."
(Emphasis added.)
Any shift to lower-priced products in the printer space is worth noting. Dell's printer business hit a wall when its shipments skewed toward lower-end products that went to customers who print less and, down the road, buy fewer consumables. While HP's printer volumes from the high-end of the market to the low end of the market are so huge any shift like this might simply get buried in its overall results, a shift to low-priced products can be a leading indicator of future pressure on the supplies business.
HP also noted this:
In a brutally competitive market, it may be difficult for HP to see continued declines in RD spending. And it may also be difficult for HP to continue showing profitability improvements from the ongoing restructuring enacted after Mark Hurd became CEO. HP writes that it is running out the string on a key piece of that restructuring:
HP continues to be the dominant vendor in PCs and printers, and its strategy has been bulldozing the competition for the past two years. But this 10-Q report from HP suggests it may need to enter a new phase in its strategy to stay on top.