HP: We'll invest in PC success

Hewlett-Packard faces a tough fight in the PC space. As the retail prices of desktops and laptops continue to fall, manufacturers are finding themselves in a cut-throat battle for sales and market share.

IBM responded by throwing in the towel and selling its PC group to Lenovo, but HP isn't planning to follow suit. Instead, it's betting on mobility and the personalisation of the PC to help win the day.

HP's second-quarter financial results are due out on 16 May, so we spoke with Alberto Bozzo, European vice-president for HP Personal Services group, to learn about the direction the company will take in 2006, and to get a few hints about HP's financial performance.

Q: What is your strategy for the Personal Systems Group in 2006?
A: Our strategy for the Personal Systems Group has three main axes. Number one is optimisation of costs — getting efficiencies through cost saving. Number two is selective investment in growth areas. The third area is capital investment.

What are the growth areas HP has identified?
For the product angle, this will mean the introduction of workstation blade investment. These are useful for financial institutions and traders. Every trader at the moment has at least four screens, and one or two workstations. Practically, this is like a heating system.

What advantages do blades offer, and aren't they expensive to implement?
Blades can reduce the total cost of ownership. From a purchasing point of view blades cost more, as does the equipment system for the blade enclosure. But there is a saving in service and support.

Are there any other advantages?
Automatic failover is useful in a trading environment, where seconds lost can mean a lot of money lost.

What are the other product areas HP is investing in?
We are investing a lot in thin clients, which are useful for call centres and front desks in branch offices. HP is the only big player producing and selling thin clients. WYSE and Neoware are niche players.

We will also continue to invest heavily in mobility products.

Will HP expand its production base?
Yes. Our geographical growth will focus on the Middle East and Africa, because of the potential growth of the market. In South Africa and the Middle East, we've already built local assembly lines to reduce tax barriers. There's also a psychological component for local sales — the social mechanism of labelling our South African products "Proud to be made in SA" is important.

How about capital investment?
The cash position in the company is about the acquisition space and it's also about the people. We are concentrating on growing our people skills in the areas of product investment, and also in areas where we don't have core experience.

In which areas are you interested in acquiring other players?
We are planning further acquisitions in the wireless and mobile areas, after three years of investment already.

We have plans to grow the thin client market by two or three times, but not through acquisitions. We'll play on our portfolio of managing servers and networks. The thin-client area is very profitable because it's a solution play, providing client services and software, not just a purchase of a single box.

And you have no major competitors in the thin client area? Your major competitor is Dell, do you seem them as a threat?
Dell isn't playing in the thin client area.

HP also has the biggest channel globally. In EMEA [Europe, the Middle East and Africa] we have 126,000 active resellers, but between 7,000 and 8,000 represent our core channel revenue.

Dell is huge, so how will you compete in the future?
It's a matter of specialisation of competencies. We can compete head to head with Dell in the direct space. We are displacing Dell in most of the bigger and strategic accounts.

How do you know?
Most of our large customers are dissatisfied customers from Dell.

What do they say they were dissatisfied with?
They were dissatisfied with the services that haven't been delivered, delivery times, and with the quality of the product. If you look at our growth, an enormous part has been in increasing the total customer experience.

Are there still more corporate customers to gain?
There's still a huge global customer list to address — mainly current IBM and Dell customers.

Analysts have predicted a shortfall in Dell's Q2 earnings. Does direct sales competition have anything to do with this?
The recent shortfall of Dell performance has been linked to fierce competition in the direct space. Customers are asking to buy directly from us because of the quality of service of the direct relationship.

HP is announcing its Q2 earnings on Tuesday. What can you tell me ahead of the announcement? How will you compare with Dell?
If you look at our Q1 market share data, Dell is growing slower than HP. Our financials for Q2 are based on our results for February, March and April, two thirds of which is in calendar Q1. You can calculate approximate revenue from results that are already in the public domain.