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HP finds a new hero in premium PCs as market turns 'volatile'

James Henderson | Aug. 29, 2016
HP reported increased PC market share, to nearly 21 percent, improving in the quarter ended July 31

Looking ahead, Narcotta forecasts revenue growth between 5-15 percent year-to-year each quarter through 2017 in premium consumer notebook PC and gaming PC segments, which promise greater profits per PC sold and are enticing Windows PC OEMs to enact new strategies to capitalise on these lucrative segments.

For Narcotta, HP’s new initiatives in PCs with ASPs of $US1,000 and up from its revamped OMEN gaming PC brand and Spectre premium notebook PCs are “clear signs” that the vendor is aware of this trend and the opportunities within its existing customer base and addressable markets.

Meanwhile, the vendor’s Personal Systems' revenue and operating income recovered 0.1 percent and 57.8 percent year-to-year to $US7.5 billion and $US333 million, respectively, in 2Q16.

“This shows the potential of excelling in premium and gaming segments in which the typical 2-in-1 or gaming PC sale generates two to three times more revenue and profit compared to traditional notebook PC form factors,” Narcotta explained.

Delving deeper, unit shipments were up four percent year-to-year, to 12.8 million, fuelled largely by greater demand for notebook PCs, and consumer revenue climbed eight percent year-to-year to a TBR-estimated $US1.7 billion.

“Greater scale in premium PCs will also help strengthen HP’s brand, increase its customer loyalty, and raise awareness and purchasing consideration of high-margin peripherals and services in its portfolio,” Narcotta added.

While fostering commercial PC growth is emerging, somewhat uncharacteristically, as a challenge - the hardware vendor also cited a greater mix of Chromebooks in its commercial PC mix, particularly in education and finance markets, as a detractor to commercial PC revenue and ASP.

Consequently, Narcotta believes HP’s move into the premium PC segment will “shield the company” from this trend, as well as most of the effects of greater competition among Asus, Dell and Lenovo for customers in a shrinking global PC market.

“HP’s strategy to architect its business to endure declines in midrange and entry-level devices as it formulated its strategy to capitalise on growth in the premium PC market was a savvy move by the company, and has strengthened HP Inc.’s competitive position relative to its largest competitors,” Narcotta added.

“Revenue recovery, slowing gross profit erosion and operating income gains in a declining global PC market illustrate the potential long-term impact on Personal Systems, as well as HP overall, should it continue to successfully execute on its PC strategy.”

 

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