HP's PC business,growing but unprofitably.(comparing HP & DELL)
TP:
Interesting article on HP's PC business,wonder why they are in it!
==================================================
Excerpts from Forbes.
"...After a sluggish start, Hewlett-Packard has made itself a power in the PC business. Now comes the hard part: Making a real profit......
In just a few years HP has pushed its long-stumbling PC business to $9 billion in annual sales. But operating profits in its PC unit are only 3 cents on the dollar compared with Dell's 11 cents. The PC unit ran a $60 million loss in the second quarter on price cuts and bloated inventory..........
But while HP has achieved good growth in PCs it hasn't been very profitable growth. In gross profits—revenue less the cost of manufacturing—HP's PC unit delivers a 17% margin, to Dell's 22%. HP spends 14% of sales on selling overhead, sharply higher than Dell's 11%. These relatively high costs in both manufacturing and selling explain HP's low rate of profitability in PCs.
...............
For this the stock market penalizes HP. It puts a $66 billion valuation on HP's $47 billion in revenues; Dell, with a third of HP's revenues, has a market cap nearly one-third higher.
So the pressure is on HP Vice President Duane Zitzner, 51, who took over the PC business in 1996, when HP ranked seventh in shipments. He has slashed away at costs. While HP trails Dell in efficiency, inside HP the PC business looks pretty sleek, with selling costs as a percentage of sales a third lower than for the company overall.
To constrain operating costs, Zitzner outsources most assembly to SCI Systems, Inc. and others. He has speeded inventory turnover. But HP must do more. It had long balked at emulating Dell by selling directly to customers. It didn't want to upset its dealers. In October HP began taking the Dell route, setting up direct sales on the World Wide Web, albeit gingerly for fear of alienating retailers.
Platt says he won't entirely emulate Dell's virtually middleman-free delivery, but emphasizes that HP will move in that direction..................
forbes.com
|
