HP (HEWLETT PACKARD) SWOT Analysis
Incorporated in 1947, Hewlett Packard (HP) is a leading brand of Personal Computers and laptops. HP has a large product range and even after the separation (HP & HPE) that took place in 2015, it deals in a wide range of products. HP & HPE became two separate divisions in 2015. Now, HP is the division that deals in computing, access devices, printing, imaging and related technology solutions and services. The Personal Computer market has declined rapidly in the recent years. Technological development is happening at faster pace leading to unexpected changes. Growth of the smartphone and tablet industry has led to rise in the use of mobile computing devices and falling sales of PCs. The PC market is currently dominated by two big brands – ‘HP’ and ‘Lenovo’.
HP is the market leading Personal Computing brand with Lenovo in close pursuit. Its leadership position can be attributed to its focus on innovation. HP invests a large sum every year in research and development. However, competition in the Personal Computing industry has grown and despite shrinking demand, it remains a large industry. While Lenovo is a leading competitor of HP, the challenge from Dell, Apple and Asus is also remarkable. HP’s strategic decision to operate HPE and HP separately could prove profitable in the long run as it allows the two businesses to focus exclusively on their respective domains.
Who are the competitors of Hewlett Packard (HP)?
Among the competitors of HP, most notable names are Lenovo, Dell, Apple, Asus, Acer, IBM, Canon and Epson.
Strong Brand Image: –
Hewlett Packard has maintained a strong image in the Personal Computing market. There are several things from product quality to marketing, reputation and quality of after sales service that affect the image and credibility of a Personal Computing brand. Sustained focus on quality and innovation have helped HP create a reliable image and high level of trust and loyalty among its customers. The brand has brought a very large range of products. In 2015, HP and HPE became two divisions and HP deals with only computing, printing and imaging products. Otherwise, it had a larger product portfolio. From the lower to the higher end, its products in various price categories cater to the needs of a diverse customer segment. A strong brand image in the technology industry translates into higher sales and revenue as well as higher customer loyalty.
Large Product Portfolio: –
HP has a large product portfolio. Apart from a large range of laptops and personal computers, the brand also provides printing and imaging solutions and related technologies. The large product portfolio of the brand is targeted at a very large, global and diverse customer segment. It also helps bear the effects of rapid and unexpected economic changes. A large product portfolio can help build a large customer base which is an important strength for any technology brand.
Large Market Share: –
HP is currently ruling the personal computing industry with highest sales and shipments. In 2017, its market share was 21% according to research by IDC. ( Second Quarter of 2018 – market share of HP grew to 23.9%, followed by Lenovo’s at 22.1%. Dell came third with a market share of 18.1%. Number of HP PC shipments was 14.9 Millions in 2018 Q2, versus 13.8 millions during 2017 2nd quarter.) The brand is ruling the Personal Computer industry with highest market share followed by Lenovo and Dell. Apple’s market share is also much lower than HP’s. However, Lenovo is a very close competitor with a small difference in the market share of the two. The large market share of the brand means a larger customer base than the other brands. It reflects the high level popularity, trust and customer loyalty HP enjoys.
Focus on Innovation: –
HP has focused on innovation for the growth of its brand and market share. Its focus on innovation also shows in its R&D spending. The brand invests heavily in research and design to bring new and more efficient as well as attractive models that are more popular. This is important in a highly competitive market since companies need to keep their customers engaged to achieve growth at a faster rate.
Strong Financial Condition: –
HP’s condition is financially strong which gives it extra leverage in terms of research and innovation as well as marketing expenditure. Moreover, Human Resource Management is also a costly affair and in the technology industry you need to hire the best to remain competitive and ahead of the others. Apart from paying competitive salaries, brands need to provide appropriate financial and non-financial incentives to attract and retain the best talent in the industry. HP’s strong financial condition gives it extra leverage. It can spend more on marketing and HR and focus upon new technologies.
Global Presence: –
HP is a global brand that sells in all corners of the world. It is a popular brand of Personal Computers, laptops and printers selling in several corners of the world. However, United States is the largest market for the brand, accountable for the biggest part of its revenue. In 2017, it accounted for around 35% of the brand’s revenue. Global presence of HP is a major strength and responsible for the higher revenue of the brand.
Declining Gross Margin:
HP’s Gross margins have continued to decline over the past few years. From 19.3% in 2015, it fell to 18.7% in 2016 and then 18.4% in 2017. Higher commodity costs as well as unfavourable foreign currency impacts have continued to affect this decline. Another important factor that has affected the gross margins of HP is the brand’s dependence on Personal Computing business.
Higher dependence on US markets:
US markets are accountable for the largest part of HP’s revenue. Around 35% of HP’s revenue came from US in 2017. This also leaves the brand open to several kinds of risks associated with the US market. Economic fluctuations in the US market can reduce demand and lead to lower sales there, which in turn affects the brand’s revenue. US is one of the most advanced economies of the world. It is the largest technology market and a major source of revenue for the world’s technology brands. However, if demand is distributed more evenly globally, then it is financially good for a brand. In case of the technology brands this may be slightly difficult to achieve.
Higher dependence on PC segment:
The brand is dependent on the PC segment for the highest part of its revenue. This has continued to affect its gross margins. Over the last three years its gross margin reduced from 19.3 to 18.7%. This has also been adding to its operational costs.
Dependence on external suppliers:
HP depends mostly on external suppliers for the production of its merchandise. It mostly resells products made by other suppliers. In case of some specific products, it has limited number of suppliers. This could be costly for the brand under some circumstances. High dependence on suppliers can also affect profitability.
Product innovation presents a major opportunity for the laptop and PC makers. It is because people’s preference and taste are changing continuously. Brands have to focus upon product innovation to match the changing preferences of customers and changing market situation. People want products that are lighter and more efficient since they have to remain active throughout the day. Higher need for mobility has led to higher demand for slim and light-weight laptops. The need for product innovation to remain competitive is now stronger than ever.
Digital Marketing offers several new opportunities for brands to grow. The growth of digital technology has created new opportunities for brands to market their products to a larger customer base. It is a great opportunity for the brand and it can engage its customers using digital channels and by utilising new and improved marketing and customer engagement strategies. Moreover, new technologies like AI also offer a great opportunity for HP to create better customer experiences as well as engage its customers using new methods.
Supply Chain Digitization:
Digitisation of the supply chain can help bring more efficiency as well as reduce costs and create better relationships with suppliers and customers. In today’s highly competitive environment of the technology industry, it is important to manage the supply chain strategically so as to create sources of competitive advantage. Moreover, digitising the supply chain will reduce operational costs and help ensure timely availability of raw material.
Diversification can also help HP extend its brand presence. It is leading in the laptop and Personal Computing industry and can extend its presence into new business areas like cloud computing and other technology related areas which can also help it grow its business. The technology industry is evolving fast and there are several channels open for HP to explore. Being a financially strong business, it can easily move into new fields and create new channels of revenue. This will also act to reduce its dependence on the Personal Computing business.
Declining PC market:
The Personal Computing market has declined a lot in this decade and that has led to decline in demand and sales of PCs and laptops. The demand for PCs and laptops will continue to fall as per predictions and this can be a major threat for all the Personal Computer brands. HP too will bear the heat as the rising sales of smartphones and tablets continues to affect the demand for PCs and laptops.
Legal and political regulations:
Legal and political regulations too pose a major threat before the brand. Around the world and especially in the technology industry, large businesses are facing heavy legal regulations and government oversight. Non compliance can result in heavy fines as happened in the case of several technology giants in EU. Legal pressure is also leading to higher compliance and operational costs for the brands. Brands have dedicated compliance teams to deal with legal issues. From HR to environment and product design and quality there are several areas where law has tightened its grip leading to higher pressure on technology brands.
Rising competitive pressures are a major threat for the PC and laptop businesses. The number of brands in the computing industry is large and each one is aggressive about growth. Moreover, the continuously changing technology environment also requires that brands continue to remain invested in innovation for faster growth. From Dell to Apple and Acer, there are several brands in the PC industry battling for market share and sales growth. This has led to higher costs of marketing as well as higher R&D expenditure. Apart from that, brands like HP have to focus upon product and design innovation. They also need to engage their customers using new customer engagement techniques to remain competitive.
Rising labor and raw material costs:
Over time the operational costs have increased in the PC industry driven by high labor and raw material prices. While brands have adopted better strategies of supply chain management, costs of labor and raw material are still rising leading to higher operational costs for PC brands like HP.
#Conclusion & Suggestions:
HP is a leading brand in the PC industry but the level of challenge in the PC industry has increased. The recent separation of HP and HPE allows the two businesses to focus exclusively on their respective domains. This will prove beneficial in the long term allowing the two divisions to stay focussed and grow faster. Product innovation is now more critical for HP than ever. It will need to sustain the momentum it has gained over previous some years. It must focus on acquisitions and diversification to find faster growth and create new channels of revenue. Gross margins of the brand have also kept reducing over past few years. It could improve its gross margins by releasing new product lines including tablets and smartphones. HP should also improve supply chain efficiency using digitization and engage its suppliers and customers using new techniques. The Personal Computing industry has not entirely lost its charm and innovation could help break new grounds. It is now upto the PC makers to get the customers interested again by bringing models that fit better into their customers’ lives.
HP Annual Report 2017