HP “Medals” In U.S. PC Olympics
Written By: C. McNulty
Published On: May 26 2000
HP "Medals" In U.S. PC Olympics
Hewlett Packard [NYSE:HWP] and Gateway [NYSE:GTW] have both become consumer
driven PC businesses. However, when IBM [NYSE:IBM] chose to exit the retail
market, HP was poised to take over - since an HP Pavilion was usually
already one shelf over at CompUSA or Best Buy. (For a broader overview
of the market, please see TEC's article Desktop
PC's: Meet the New Boss.)
and HP have tracked general PC system growth in the U.S. for the past
two years. We expect Gateway to continue to perform on par with market
trends. However, with IBM out of the retail market, HP is outperforming
the rest of the market. While the US market is growing at 15%, HP is growing
at an astronomical 38%. We expect this trend to continue throughout 2000
Source: TEC [Note: 2000 figures are TEC forecasts.]
While Gateway has been a pioneer in direct sales, HP has relied on a worldwide
army of resellers and VARs. Although HP would love to develop its direct
sale capability (who wouldn't?) its growth surge is being led by the retail
is in a good place. They've had explosive consumer growth already this
year, while their new business offerings, led by the e-Vectra, are just
hitting the market.
U.S. sales are on track to reach 5.4 Million units in 2000 - up almost
1.5 million from 1999. It's still shy of market leaders Dell [NYSE:DELL]
& Compaq [NYSE:CPQ] (9.8 & 8.6 million, respectively). But reaching #2
is U.S. sales is no longer impossible.
[Note: 2000 figures are TEC forecasts.]
Lately, HP's been slipping some in the minds of business systems buyers.
HP needs to draw attention to its deep technical advantages via aggressive
marketing to avoid becoming an also-ran - in the minds of buyers, service
providers, and software vendors.
Battletested in the price wars of the retail market, HP has the potential
to offer the business user a winning mix of low price and technical superiority.
Gateway takes the lead in direct sales over HP - it's bested only by Dell
Computer Corporation. Gateway has little in the way of R&D. Gateway does
have a retail presence, but its retail sales take place in the company's
own chain of 200 Gateway Country stores in the U.S.
sales strategy is simple. It targets the consumer, but doesn't mind picking
up business sales along the way. In 1999, 48% of Gateway's sales were
to consumers, while 37% were to businesses.
is no slouch in the market - its U.S. growth rate, currently 21%, outperforms
the overall U.S. desktop market (currently growing at 15% annually.) And
for Gateway, consumers are the jet engines of growth - consumer growth
was 25% at 1999 at Gateway, while business growth was only 5%. Gateway
is on track to ship 4.8 million systems in the U.S. during 2000.
in 2000, Gateway will be introducing a line of Linux-based Internet appliances,
jointly developed with AOL. This will be an interesting project - especially
the Linux desktop appliance PC - but it doesn't do much for the high-potential
entry-level Astro is priced higher than Dell's similar consumer offering.
This sub market - consumer appliance PCs - will heat up as we see new
products derived from Compaq's iPaq and HP's e-Vectra. The Astro needs
to stay price and feature competitive.
Gateway can't grow much faster in the U.S. consumer market, so expect
them to hunger more for business users and overseas markets. If you're
a U.S.-based business with a Gateway Country store down the street and
a couple of sales offices in Asia & Europe, Gateway would love to talk
you. Press for price advantages and local service offerings.
In Robert Frost's "The Road Not Taken", the poem ends with the famous
"two roads diverged" metaphor. In the poem, they never meet again. However,
in the PC marketplace, Hewlett Packard and Gateway have taken radically
different roads to arrive at the same place - the consumer market.
has an asset no other major PC vendor has - its network of Gateway Country
stores. Gateway needs to develop and extend its build-to-order, sales
& service from this unique resource.
is traditionally known as a full-service, engineering-oriented company.
Its current consumer growth is phenomenal, but it's coming in a lower
margin part of its business. HP should leverage its consumer success and
brand awareness to more aggressive marketing and development for its business
systems. HP also needs to stay price-aware in the fickle retail markets.