When Hewlett-Packard Co. is discussed in the media, it is
portrayed as a PC company. On the surface, that makes sense: HP
is the largest PC maker in the world, and personal computers
are 30 percent of its revenue. But and this is a very
important but PCs today represent only 10 percent of
HPs operating profits. Also, despite current conventional
wisdom, PCs, unlike IBM Corp.s mainframes in 1993, are
not going away.
A few years ago, when Apple co-founder Steve Jobs was asked
about his vision for the tablets and PCs of the future, he said
they reminded him of cars and trucks: We need both, but there
are more cars on the road than trucks. Steve was right, but
success or failure will come down to how big the total market
for personal devices (irrespective of form factor) will be and
what the mix between PCs/notebooks and tablets will be.
The tablet is a terrific tool for consuming information
reading e-mail, watching movies, communicating on Skype,
playing games but its form factor limits it as an
effective productivity device. Large screens, a mouse, high
computing power, multitasking and multiple windows open at once
are the features for which well still need PCs.
Tablets will be taking market share from PCs and notebooks
in the consumer market, where information is mostly absorbed,
not created. But according to technology research firm Gartner,
consumers represent only 26 percent of total desktop and
notebook sales. Tablets will have a much smaller impact on
business users because businesses employ PCs as productivity
Look around you: You probably have a tablet sitting on your
desk, but you probably still do most of your productive
content-creation work on a PC. Once I left my Dell notebook at
home and took my iPad on a business trip. As much as I love my
iPad, I felt paralyzed I could not run my spreadsheets
or edit my PowerPoint presentation (doing it on the iPads
touch screen was a nightmare). Now when I travel, I always take
along both my iPad and my notebook computer.
In some business areas tablets will take market share from
PCs and notebooks. For instance, nurses in hospitals will be
using tablets to interface with patients, and police officers
will be able to use tablets instead of bulky laptops in their
cruisers. At the same time, the whole computing market will
grow because cash registers will be using tablets instead of
clumsy, dumb non-PC terminals.
There is talk of hybrids I guess Jobs would probably
call them SUVs: devices that combine the notebook and tablet.
Microsoft Corp.s Surface is an entrant in this space, but
so far it has not been successful. HPs forthcoming
failure in tablets is presumed as a certainty, based on the
companys poor track record in this area, but I
wouldnt bet the farm on it. I would not completely rule
out tablet success, especially if CEO Meg Whitman can
resuscitate HPs famed R&D.
PC and (especially) notebook sales will likely reset to a
new, lower level, but their demise, just like the predicted
extinction of mainframes in 1993, has been grossly exaggerated.
They are too important to the completion of productivity tasks
to go away.
Also, the recent decline in PC sales has been significantly
affected by Microsofts Windows 8. In the past,
introduction of a new Windows version drove the upgrade cycle
and PC sales. This time around, the opposite has happened.
Windows 8 is very intuitive if you have a tablet or a PC with a
touch screen (few of us have those), but the new interface is
very confusing to most people who still use a mouse and
keyboard. It is simply a horrible product for PCs.
Windows 8 is hated so much that there are
well-substantiated rumors that Microsoft will come out
with Windows Blue (Windows 8 fixed) this summer two
years before youd expect to see the next version of the
operating system. Windows 8 has been turning people off from
upgrading their PCs, but this will change once it is fixed.
It is also important to understand that HPs PC
business, for the most part, doesnt make anything. HP
simply designs a PC and then outsources assembly to a company
in Asia that uses commoditized hardware created and developed
by other companies. HP, just like Dell, is a distribution and
marketing company. This is important because its PC business
has a very high return on capital and very low fixed costs, so
even if it is reset to a lower level, HP can still remain very
Vitaliy Katsenelson (email@example.com) is CIO at Investment
Management Associates in Denver and author of
The Little Book of Sideways Markets.
See related story:
No Kodak Moment for Hewlett-Packard