According to IDC’s Q1 PC shipment report, worldwide PC shipments fell 14% to 76.3 million units. The decline was attributed to the increased adoption of mobile devices and the muted response to Windows 8. The declining market is intensifying competition among existing vendors. Most industry players have been diversifying operations into higher margin products and emerging trend technologies. Under Meg Whitman’s guidance, HP (NASDAQ:HPQ) seems to have found a successful alternate strategy as well. They remained the market leader in the industry despite a 24% drop in shipment volumes. HP now commands 15.7% of the global PC market.
Quarter’s revenues fell 10% over the year and 3% over the quarter to $27.6 billion, falling short of the Street’s projected $28.12 billion. Revenues may be falling when compared with the previous year, but the decline has slowed down sequentially. EPS of $0.87 was ahead of the Street’s target of $0.81. HP’s management believes that they may have hit bottom and will only recover from here.
The revenue decline was seen across all segments. Revenues from personal systems fell 20% over the year to $9.47 billion, driven by reduced PC sales. Commercial revenues fell 14% over the year and consumer revenues fell 29.0%. Printing revenues fell 1% to $6.13 billion, and Enterprise Group revenues fell 10% to $7.55 billion. Revenues from Enterprise Services fell 8% to $6.49 billion and software revenues declined 3% to $0.97 billion. Revenues from HP Financial Services also fell 9% over the year to $0.97 billion.
For the current quarter, HP projects EPS of $0.84-$0.87. They expect to end the year with EPS of $3.50-$3.60. The market expects EPS of $0.83 for the quarter and $3.44 for the year.
HP’s Product Enhancement
Unlike competitor Dell, which decided to combat declining PC sales by offering computers at steep discounts, HP is enhancing their offerings and focusing on higher margin products. As a result, even though HP’s PC segment may have seen revenues decline 20% over the year, they were able to contain the impact on margins to a 3% reduction.
HP plans to continue to do that through release of a slew of new products aimed at addressing emerging trends. The recently released HP ENVY Rove20 mobile All-in-One PC is their first mobile All-in-One PC is a desktop PC that can be shifted from an upright position to a completely horizontal position to offer a tabletop experience to end consumers. The machine offers a shared entertainment experience and advanced touch technology to families while enabling them to connect, share and create rich multimedia content on the 20-inch 1,600 x 900 IPS LED panel. It also lets users enjoy multi-player games with each other which are easier to play when the machine is laid out flat.
HP also launched several Windows 8 touch-based PCs such as the HP Pavilion 20 TouchSmart All-in-One PC and the HP Pavilion 23 TouchSmart All-in-One PC, which feature better display and are more value for money. The more affordable HP Pavilion 11 TouchSmart Notebook provides the Windows 8 experience with 11.6-inch, 10-point capacitive touch screen. But, Windows 8 is not the only OS that HP is working on. They also released the Pavillion Chromebook, which is their first Chrome OS–based device. Priced at $330, the device is at the lowest price point HP has to offer. HP is also developing additional Android tablets and plans to launch Slatebook X2, an Android convertible with Nvidia Tegra 4 processor and a 10.1-inch screen. The machine is expected to be extremely competitive on price.
HP is also pleased with the performance of their enterprise group where they are building a converged infrastructure solution for their customers. During the quarter, HP launched a new class of server, Moonshot, for the Hyperscale market. The new product offers better utilization of space, energy, and costs while becoming less complex and making it a more viable option for enterprises in the long run.
In addition, HP is improving internal processes and sales efforts. They have worked on improving their pricing processes, which has helped reduce their quote turnaround time by more than 50% in Europe. They also automated their deal registration process and implemented an e-ordering portal and quote tool that helps their partners speed up deal closures. They are seeing the new processes improve cycle times by more than 20% in Asia.
The market is pleased with HP’s new range of products and services. Their stock is trading at $24.21 with a market capitalization of $46.85 billion. It touched a 52-week high of $24.95 earlier last week.