Which PC maker will fare best in a bad economy?
Commercial and consumer spending on technology is expected to fall off in the next year, and the PC industry is bracing for the impact.
Already beginning to feel the effects of sagging average selling prices, thinning margins, and oversaturated markets in North America and Europe, there's clearly going to be a shakeout among the biggest players as the economy enters a full-blown recession. (Of course, many believe we're already in one.)
Intel's warning this week that the company sees "significantly" lower demand for its chips signaled that the worst is still to come for PC makers as they navigate the current economic storm. So how will the five biggest producers of PCs, which account for about 54 percent of all PCs sold, fare as demand wanes and prices drop?
No surprise, it's Hewlett-Packard, the top PC vendor in the world for the last two years, that appears best positioned to weather a recession.
There's bound to be a whole lot of uncertainty among PC makers: uncertainty about what's the right combination of products that will attract consumers during a recession and beyond, and fear of overproducing products that are too expensive for increasingly price-conscious consumers and budget-constrained IT departments.
In other words, with fewer people and businesses shopping for PCs, "where do you want to emphasize your opportunity" and pick up market share from competitors, said Richard Shim, PC industry analysis with IDC.
For HP, already a third of its business comes from software, services, and enterprise storage, while another third is derived from selling PCs and consumer devices. The rest is from its printing business and other investments.
"Obviously the more diversified your product selection is the more chance you have to be positively impacted by whatever sectors outperform the inevitable weakening," said Stephen Baker, vice president of industry analysis for The NPD Group.
This seems to apply well to HP. Within its lineup of products, it's fairly well distributed: consumer and small, medium, and enterprise laptops, desktops, servers, storage, printers. The brand also has a presence in all major markets, including the ones that still have a high demand for PCs, like Latin America, Central and Eastern Europe, and the Middle East.
But as consumers become more focused on price, it remains to be seen how HP will balance that with some of its more high-end product lines. Its high-end designer PCs from its Voodoo PC division could be an increasingly unattainable luxury to a lot of consumers.
Accordingly, just last week HP announced it was cutting the price of the Envy 133 notebook from $2,100 to $1,900, and it also bumped the price of its Blackbird 002 gaming desktop from $2,000 to $1,800. HP did not respond to requests for comment about whether we would see more price cuts in the future, but it doesn't seem unreasonable as consumers guard their wallet more closely in the coming year.
On the other end of the market, HP just recently released a full lineup of Netbooks, or smaller, lightly featured laptops for between $400 and $700. Though meant for surfing the Web, and some productivity applications, they're not sufficient for a full computing experience. But the attractive price and growing awareness of the category could help HP weather the storm.
Dell better positioned now
Chief rival Dell has undergone a huge makeover recently, and while it is still trying to find ways to save on costs, it's probably better positioned to ride out a recession now than it was two years ago when its main business was direct PC sales in North America.
Since then, Dell has expanded to include a successful retail business and emphasis on services, software, storage, and servers. It has also moved into emerging countries like China and India--whose markets have yet to be saturated with PCs like those of the U.S. and Western Europe--and emphasized a global strategy of pushing different types of notebooks, lately Netbooks, and its small business-oriented Vostro line.
As a result, half of Dell's revenue now comes from business conducted outside the U.S. That's promising, considering where the company has come from. But it's still a company in transition, and while trying to cut costs and develop its burgeoning retail and global sales, it's not as well positioned as HP.
Acer is more of a question mark: though the company has been incredibly aggressive around pushing notebooks and Netbooks, particularly in Europe, it's sacrificed price for market share. While that does put pressure on HP and Dell in regard to price, that leaves some question about a more long-term plan for success and profitability, said Shim of IDC.
You can do what Acer has been doing, he said, "but you need to back it up with higher performance or higher-end products as well."
Lenovo, Acer's closest rival, could be perhaps the worst positioned of the top five in terms of staying afloat during the downturn. IDC is predicting a significant slowdown in IT spending next year, and Lenovo sells mostly commercial PCs. The company is already seeing signs of the slowdown, reporting a 78 percent drop in quarterly earnings last week. It's only recently drummed up a consumer business, is so far not well established as a consumer brand, and is positioning the Ideapad line as a premium product.
But looking even further into the future, Lenovo is well established in its home market of China, which is still a growing market for PCs.
Toshiba is heavily invested in the consumer market and particularly in small and medium businesses. As consumer spending falls, it's hard to spot places where Toshiba, which shipped 3.7 million PCs in the third quarter, will gain market share.
What's more likely is the biggest PC vendors--like HP and possibly Dell--with their their scale and reach into a broad variety of markets, will just get bigger.
Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur. E-mail Erica. 
1.) They don't have low-end computers to sell in a down economy.
2.) Most of their computer sales are in the US, so they will be hurt the most in a US-lead global recession. (The Mac's worldwide market share is still around 3%.)
A low-end range? The Mini - a lot of bang for not a lot of bucks, especially once they refresh it.
Otherwise, Folks are buying computers to last again, and not as mere disposable machines - like they did in 2005 or so.
The US may be leading the woes, but will also recover faster, which means that Apple is poised to bounce higher once it does.
HP will probably continue at a slightly lower growth rate, just as Apple, with the two growing at only slightly smaller rates as they had before - that is, Apple will probably continue growing at ~25% and HP will eke out ~10% growth (whereas they grew @ roughly 30% and 14%, respectively).
Absolutely NOT true. Comparing equivalent hardware, Apple computers are as inexpensive or in some cases even lower cost than the competition. Concerning total cost of ownership, there is no comparison.:
1) Macs build quality is generally better than the competition and therefore Macs last longer.
2) Macs generally include a better software package than the competition and are free of crapware.
3) While Microsoft is releasing OSes that are becoming slower (and early indications is that Windows 7 is no faster than Vista), OS X is becoming faster, therefore older Macs are less likely to become obsolete.
4) There is no need for the extra expense and hassle of antivirus software. Vista's security is far better than XP, but that is not saying much considering where XP started from. To date, there has still not been a single documenting virus attach on Mac OS X.
Finally as others have already mentioned in this thread, Apple customers are the most loyal and affluent plus Apple has $25 Billion in the bank. All things considered, Apple is far better positioned to ride out this economic down turn than HP.
Windows 7 has already been proven to be faster than leopard go spread your FUD elsewhere please.
Windows 7 has already been proven to be faster than leopard go spread your FUD elsewhere please."
So an unreleased, still in development, fewer features, untested in the real work OS is theoretically faster than Leopard. Get back to us when Win7 is out on the mass market.
You are missing a few points:
1. Apple users perceive value that you over look.
2. Apple users are not going to "change vendors" like a windows user will. They are loyal to the OS and therefore the vendor.
3. Apple users are a different breed of consumer to whom a different set of economics apply.
Apple's growth may indeed slow, but I don't see them loosing any customers in this economy. It would be like replacing your furnace with a electric/gas unit as the market changes. You just don't do it. You choose one or the other based on your requirements. For Apple users, their requirement is "anything but windows".
Hmmmm
so your saying a mac and a pc are both a pc
wow apple and microsoft are wasting millions to prove otherwise
you shuld email them and let them know
I don't know why HP's type of diversification will help it whether the recession. They sell a lot of products but they are complementary products. i.e. a recession that depresses demand for PCs it will also hurt the demand for software, computing services, enterprise storage, printers, etc.
Both companies have liabilities on their SEC filings that are fairly similar ratio of assets. The cash on hand is definitely nice, but unless Apple can maintain profits there is no guarantee that it will last as long as you think.
"HP may have more econo boxes, but does that really matter if a company can't get the credit it needs to operate?"
So where are all these stories about HP not being able to get credit? I am simply not seeing them. While you may write off HP having more economic product lines I don't think that HP having more economic options isn't such a valuable thing. There are a lot of people who in years past would have considered a Mac for which the economic downturn will make them find purchasing a Mac untenable. While the Macbooks have became much more powerful, a lot of people have no need for such for such powerful machines. People will pay $100-200 more for a comparable Mac, but good luck getting most people to raise their budget much more than that.
It is much easier to cut back on production of higher end models that are sitting unsold than it is create a new line of economic products. For $1000+ laptops Apple is already the market leader so there is only so much more marketshare that they can possibly expect to add in the $1000+ market. Between a souring economy in the US (Apple is more dependent on US sales than most of the other major vendors) and just general declining interest in higher end there is a real possibility that Apple could increase their dominance in the $1000+ laptop market while actually selling less Macs.
"Banks could cut off Apple's credit tomorrow and the company would go on for another 10 years."
No tech company could survive 10 years without either reporting profits or receiving infusions of cash from investors. $21 Billion in cash sounds like a lot, but that would be lucky to pay salaries for the next 10 years nevermind the cost of acquiring new equipment (you can't keep using the same equipment year after year), R&D (you can't keep selling the exact same product for more than ~1 year before customers want a new updated version of the product), or acquiring new employees (employees retire and need to be replaced with other talented people who are targets for other companies) amongst other costs of running the company.
Furthermore, I don't realistically see Apple or HP being cut off from all forms of credit. As long as they remain profitable customers they are a fairly conservative lending risk. That is such a hypothetical scenario it is hardly worth considering.
"HP can only dream of being so lucky."
The major advantage of Apple has nothing to do with cash reserves, but the lack of close competitors for the Mac. Since Apple is the only legal vendors for Macs the only real competition Apple faces for someone who wants a Mac is the second hand sales of used Macs.
Perhaps you haven't been keeping up with current events. The credit market is not exactly healthy.
My point is Apple has a reputation for a reliability, while the other companies don't so much. In a bad economy people might finally grow some brains and start saving up to buy products that may last longer rather than running out and buying one with the cheapest price tag.
However in this market even the wealthy have suffered because many had deep ties to the stock market.
Apple has limited products to work from. As we have seen with the popularity of netbook's mostly because of price. You would have to think Apple is concerned about possible pricing themselves out of a lot of people's budgets who may have considered buying a Mac for the first time. Mac fans can say Mac's are worth every penny. But many don't see it that way. They look at $600 for a Dell or $1000 for a Mac.
That's a huge difference in a price conscious economy.
That's a huge difference in a price conscious economy."
Yes and after they look at the price of the Dell they actually look at the Dell/PC, try it out, and then they usually stay with Apple. There are very few apostates among Mac users.
I find that my experience is typical of regular Mac users... we tend to keep 'em for far longer than most folks keep PC's.
Basically, Apple is making most of their money from new users, and from the electronics crowd (iPhone, iPod). It has more than enough diversity to weather the storm, no debt, and products that folks actually want in spite of the downturn.
/P
Already beginning to feel the effects of sagging average selling prices, thinning margins, and oversaturated markets in North America and Europe, there's clearly going to be a shakeout among the biggest players as the economy enters a full-blown recession. (Of course, many believe we're already in one.)
hp and pc makers
Intel's warning this week that the company sees "significantly" lower demand for its chips signaled that the worst is still to come for PC makers as they navigate the current economic storm. So how will the five biggest producers of PCs, which account for about 54 percent of all PCs sold, fare as demand wanes and prices drop?
No surprise, it's Hewlett-Packard, the top PC vendor in the world for the last two years, that appears best positioned to weather a recession...."
Is the world in the business of a guessing game or what? Where are the real "economic figures"?
Even though Apple is pretty expansive for an economy class, they probably won't get hurt as much. Most of their buyers probably are upper-class and don't get hit by economic as easily. Also they just launched a new generations of IPods, along with the IPhone and ITouch. Apple is definitely staying.
Apple does not.
HP shares have dropped from just above $45 to just above $30 in three months.
Apple shares have dropped from about $180 to $90 in three months.
If HP drops the dividend it could be very well situated to survive a downturn.
PS: HPQ peaked at $52, not $45. That's a far larger diff than you originally let on. ;)
ACER has it goin on as does Gateway which is part of ACER now. And their home offices are in Irvine.
JT
- by artistjoh November 15, 2008 8:20 PM PST
- Apple is well placed for a reason no one seems to be picking up on
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- by sanenazok November 16, 2008 7:17 PM PST
- Oh gawd no, not academia! You actually think the education market matters? I don't know about that...in any event friend of mine just got a job doing support for a major university (that isn't an arts school.) They have 95% PC's and the rest an even mix of Linux and Mac. He knows since he's in charge of them. I did the same work at my school a few years back (late 90s) and it was 100% NT back then.
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Showing 1 of 2 pages (45 Comments)This debate mentions the strengths of several company's but misses one big area that is less impacted by an economic downturn than others. It is easy to point out that business buys will significantly reduce which impacts HP in particular, but also Dell. Apple's consumer side is also vulnerable.
However education is something that goes on (like eating) regardless of the economy. I am in tertiary education so cannot comment on primary and high school, but in the tertiary sector Apple does particularly well. PC's may well be found in the office, but faculty and students overwhelmingly use Apple laptops. A published survey a few months ago indicated that at least 60% of students have Apple computers. That cool factor that Apple has cultivated with both product features and image is most effectively seen among young adult university students.
Not only do I see this in my own school, but I have one son going to university next year, and how to scrape together penny's to get a Macbook for that occasion is high on my list of priorities. I have another son who will go to university the following year. I might well go without for myself, but will not put off a computer purchase for my boys futures. (they can do without a car, but they can't do without a good computer). I suspect many other parents are in the same position and Apple will benefit.