Dell, HP struggle with consumer PC businesses

HP and Dell may need a Windows 8 upgrade cycle to save their PC profitability over time.
Written by Larry Dignan, Contributor

Two companies largely known for their PC brands are taking their lumps as consumer demand dries up and a hard drive shortage continues to wreak havoc.

Dell and HP both reported earnings this week and painted a PC demand picture that's shaky.

HP CEO Meg Whitman said on a conference call that "the hard drive shortage and continuing difficulties in China contributed to a revenue decline of 15% year-over-year" for the PC unit (PSG). HP reported better-than-expected profits in the first quarter, but revenue and the company's outlook missed estimates.


Meanwhile, HP is struggling with innovation. If ultrabooks don't become a hit HP won't have many answers. "For all that's right with PSG, we underinvested in innovation for the last several years and we've been late to market too often. We have to lead again," said Whitman.

HP, which decided to keep its PC business a few months ago, argues that the HP business helps the company get better deals on components. However, HP's server business also struggled.

Overall, HP is doing a good job focusing on profits in its PC business. The company managed to deliver an operating profit of $464 million on revenue of $8.9 billion in its fiscal first quarter. Those results, however, overshadowed notebook, desktop, consumer and commercial revenue declines.

For Dell, the PC business---especially the consumer unit---isn't so hot. Dell's consumer revenue in the fourth quarter fell 2 percent to $3.2 billion with operating income of $39 million. Sure, Dell's consumer business is profitable, but the profits pale next to other units.

Dell's desktop PC sales grew 3 percent in the fourth quarter compared to a year ago. Mobility sales---laptops---were up 1 percent in the fourth quarter.

Steve Felice, president of Dell's consumer and SMB business, said on a conference call:

In the fourth quarter results were mixed. Total revenue and margin weakness was largely concentrated in the US market with a decline of 15%. We continue to see good progress in our high-end Consumer systems as our XPS notebook revenue increased 103% for the full year. So while we're disappointed in the Q4 profitability, we're pleased with the overall progress made during fiscal year 2012.

Dell CFO Brian Gladden noted that Dell wasn't able to procure hard drives and had to sell lower margin systems.

Bottom line: HP and Dell may need a Windows 8 upgrade cycle to save their PC profitability over time.

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