Hewlett-Packard has long been the leading PC manufacturer, with it taking 16.6% of the worldwide PC marketshare in Q1 of this year (nearly 4% more than its nearest rival Dell), but the corporate Goliath today announced that it will follow IBM’s lead and shed its PC division to focus on its software offerings. The company’s Palm/WebOS based mobile devices division is also on the chopping block just a few months after purchase.
This is huge news for PC and other digital device manufacturers worldwide, as it demonstrates the shrinking profit margins for most of the sector (most notably excluding Apple), but the various calls of “the end of the PC era” should not be believed. Yes, Dell has just reported some pretty dismal numbers for the quarter, but Lenovo (the Chinese manufacturer that bought IBM’s PC division) has posted a 51% growth in profits and an increasingly positive outlook.
Growth in the traditional PC business may be slowing, as people move towards mobile devices such as smartphones and tablets to consumer content, browse the web, and check email – activities only possible with a laptop until a couple of years ago. But there is still a need for PCs for the people actually creating the content or performing work-based tasks (typing on a tablet does not compare with a keyboard). Indeed, Steve Jobs may have been prescient when he stated:
PCs are going to be like trucks. They’re still going to be around, they’re still going to have a lot of value, but they’re going to be used by one out of X people.
But what are tablets and smartphones if not PCs running in little touchscreen packages? Most PCs these days have basically the same internals and manufacturers differentiate themselves through some design tweaks, and that has driven down prices – but smartphones are following suit, and tablets will soon as well. The tablet and smartphone manufacturers (most notably Apple) are just enjoying a bit of a honeymoon period before the cheap alternatives drive prices down. The PC manufacturers looking longingly at Apple’s margins right now, will not be doing so in a few years time – but for the time being there is a lot of money to be made.
Hardware in the long-term is a low margin business, HP has seen this and has decided to move to focus on the more profitable software-side of its business. The problem with the software business, however, is that is has a very low point of entry and is therefore volatile – and increasingly so. Indeed, Autonomy, the UK software firm HP just bought for $11.7 Billion was started with very little financial investment as a spin-off from specialist software research group Cambridge Neurodynamics.
One very interesting result HP’s change in tack, however will be who will buy their PC and mobile devices businesses. HP’s mobile devices division holds a number of patents developed by Palm and could be a major target of bids from Microsoft, Apple, and Google – all currently at war over competition between their mobile operating systems. I would like to see Google buy the company as they could not only use the patents in their legal arsenal, but could take some of the best parts of the still impressive WebOS and open source them as part of Android. Apple and Microsoft in contrast would make use of the patents, but let WebOS die. Of course there is also the possibility that a currently platform agnostic manufacturer like HTC would like to get hold of Palm and WebOS to differentiate itself from the increasingly crowded Android-focused marketplace.
The PC business is s slightly different matter, however, as few companies are looking to move into the increasingly low margin business. We might see another Chinese or Taiwanese firms take over the division, as Lenovo did so successfully with IBM, but whilst HP does currently lead the market in volume sales – the PC division will probably be need to be offered at a depressed price. Maybe Lenovo will step up again?