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The Honolulu Advertiser
Posted on: Saturday, May 20, 2006

Hewlett-Packard shines in PC war

By Dan Goodin
Associated Press

SAN FRANCISCO Just five months after its $19 billion acquisition of Compaq Computer Corp. gave Hewlett-Packard Co. the No. 1 ranking in worldwide personal computer shipments, a new batch of market numbers delivered some stomach-turning news to HP.

Rival Dell Inc. had just snatched the top spot right back.

Although the companies' rankings flip-flopped in subsequent quarters, Dell eventually cemented its top market share. That bolstered critics who had encouraged HP to get out of the PC business and blasted the Compaq deal for increasing HP's exposure to that tough market.

What a difference a few years and a new CEO make.

Earlier this week, some four years after the Compaq deal closed, HP said sales in its PC division grew 10 percent in the three months that ended April 30, while Dell said its revenue grew by 6 percent over roughly the same period.

And market researcher Gartner reported that HP's share of worldwide PC shipments grew to 14.9 percent from 13.8 percent in the same period last year. Some of the gain came at the expense of Dell, whose share slipped to 16.5 percent, from 16.9 percent last year.

"It's unbelievable," said Samir Bhavnani, director of research at Current Analysis. "Dell missed the fact that people like HP and others were getting their act together."

Over the past year, Dell has underestimated the success that HP Chief Executive Mark Hurd has had in cutting costs, said Roger Kay, an analyst at Endpoint Technologies Associates.

Hurd was hired 14 months ago to replace the ousted Carly Fiorina, who had led the charge to take over Compaq.

Walter Hewlett, a son of an HP founder and then-board member, claimed during the proxy battle that the merger would "leave HP doomed to be a leader in nothing."

But rather than hobble HP, the PC business is now reliably profitable as are most of the sprawling company's divisions, which range from enterprise servers and software to printers, cameras and televisions. Dell, though still the No. 1 PC maker, has seen its profits decline.

HP shares have gained 47 percent since Hurd's appointment in late March 2005, while Dell's stock has lost 36 percent of its value.

HP shares fell 46 cents yesterday to close at $32.02 on the New York Stock Exchange. Dell rose 62 cents to $24.57 on the Nasdaq stock market.

For years, Dell's unique business model of selling custom-built PCs through direct sales over the Internet allowed the Round Rock, Texas-based company to underprice its competitors, who relied on more costly retail channels to move their goods.

"HP has done a lot of work on its cost structure, so it's able to be more aggressive on prices and still turn out a decent margin," Kay said.

On Thursday, when Dell reported that its first-quarter net income fell 18 percent, CEO Kevin Rollins cited the tough market, saying: "The competitive environment has been more intense than we had planned for or understood."

HP is also benefiting from changes taking place in the PC business, analysts said.

More sales these days are coming from consumers, many of whom have never owned a PC before, and that has put Dell at a disadvantage because these buyers are more reluctant to buy a machine online or over the phone.