| | Dell's cookie-cutter approach tops H-P
Two companies dominate the personal computer business, Dell (DELL, news, msgs) with 17.4% of the market and Hewlett-Packard (HPQ, news, msgs) with 17.1%. Indeed, Dell and H-P are rivals in just about every market in which they operate, and Dell, by almost every measure, is winning.
But H-P is working overtime to catch up with its younger, stronger rival.
To get a taste of how intense this rivalry is, just ask H-P CEO Carly Fiorina how her company can compete with the fast-growing, low-cost Dell. Money 2004.
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"It's not about how are we going to," Fiorina says. "We are. The interesting question is where is Dell's growth going to come from, because it's not desktop PCs."
But while H-P boasts that it invents new technology, Dell spends relatively little on research and development, 1.1% of revenue, while H-P spends 4.6%.
Staying off the cutting edge
Ashok Kumar, who follows the companies for U.S. Bancorp Piper Jaffray, says avoiding the cutting edge gives Dell a competitive advantage.
"I think that Dell's advantage right from the onset is that it's process driven as opposed to product driven," Kumar says. "And I think that's what I would consider a sustainable advantage for Dell."
Dell applies that cookie-cutter model to every market it enters. What it began with personal computers spread to servers and now into consumer electronics. Ominously for H-P, it's also spread into printers, H-P's key business.
Hewlett-Packard finds itself in virtually every business arena as Dell, but at higher fixed costs. A merger with Compaq has helped, but a breakdown of H-P today reveals the company has changed little in the last five years. It's in many businesses, but most of the profits still come from printing.
The printer factor
Like Dell, H-P sells PCs, servers and offers services. But in terms of profits, printers contribute 65% of H-Ps earnings, with PCs contributing just 1%.
Still, Roger McNamee, a venture capitalist with Silver Lake Partners, says that consumer electronics could become a bright spot for H-P.
"Dell has a massively better business model than Hewlett-Packard, and the consumer category will not fix the issues that Hewlett has relative to its supply chain and relative to its distribution channel," McNamee says. "That said, I think that the consumer opportunity is a lot better than is generally recognized by analysts, Wall Street and its investors."
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