Comparing the competitive strengths of Hewlett Packard and Lenovo.
HP and Lenovo are two leading names in the world of computing. HP is based in the United States and Lenovo is a company based in China. However, Lenovo is comparatively a very new brand. HP divided itself into two divisions in 2015 – HP and HPE where HP is the division that deals in the production and sales of computing and printing products. Both HP and Lenvo are innovative brands of computing products. HP is known for its quality and product innovation. Lenovo has also acquired a leading position in the PC industry and risen fast to the top based upon the quality and durability of its products. The quality and pricing strategy of Lenovo have helped it gain a large market share in the PC industry. Both HP and Lenovo invest aggressively in research and development. Competition in the PC industry has grown a lot intense in the PC industry. The recent years have also seen a decline in the sales of PCs and laptops due to the rise of mobile computing. To maintain their respective market shares both HP and Lenovo have introduced a large range of products in varying price categories to cater to the needs of the various customer segments. Let us have a look at which one of the two is more competitive and will achieve faster growth in the current scenario in the PC industry.
Product Portfolio :
HP and Lenovo are two tough players in the PC industry. Together the two have retained the lion’s share in the PC industry. One important source of competitive advantage for each one is its diverse product portfolio.
HP’s product portfolio includes laptops, PCs, printers, accessories as well as computing and mobility solutions for small and large businesses. HP deals in a large range of laptops and PCs. The main reasons behind its high sales is its large selection of PCs and laptops targeted at individual as well as corporate users. Apart from standard laptops, the company also makes gaming laptops, convertibles as well as detachables which serve as both laptops and tablets. In the past few years, the company has also released a nice range of premium laptops targeted at premium buyers. HP’s range of premium laptops includes Spectre, Envy, Elitebook and Zbook range. Omen is a range of premium gaming laptops by HP. There are some premium laptops in the HP Pavilion range as well. The company has also brought a wide range of premium priced mobile work-stations. The overall range of premium products by HP has widened a lot in the recent years. However, the company has also offered a large range of standard laptops at affordable prices that cater to the average consumer’s needs. HP’s product mix of desktops includes affordably priced as well as premium desktops including all in ones and towers. In this way, HP has brought a complete range of computing and printing solutions for individuals and businesses. Apart from individual customers, the company also serves small and large businesses as well as government customers through its large product range.
Except for the printing solutions like HP, Lenovo has also brought a large range of computing solutions for its customers. It has risen fast to become the largest laptop and PC brand in the world. However, the factors which led to quick growth of Lenovo include the affordable prices and good quality of its products. The result was higher customer satisfaction which in turn led to faster growth of Lenovo’s business around the world. It has also brought a nice range of premium offerings for higher end customers. However, Lenovo’s main focus were the middle class consumers who wanted high performance computing products at affordable prices. The products and services by Lenovo include the following :
- Lenovo Gaming Products
- Laptops & Ultrabooks
- Smartphones & Watches
- Accessories & Software
- Cloud storage
Like HP, Lenovo has also brought products for both the average consumer and the hardcore IT users who want high performance PCs. Lenovo brought a nice range of laptops, ultrabooks and PCs that catered to average users as well as programmers, developers and gamers. In this way, it has created products that are useful, efficient, affordable as well as durable. In a short period of time, it has been able to win the largest market share of computing industry. However, the company has also introduced a limited range of smartphones. Overall, both HP and Lenovo have a wide product mix that are nearly similar except that HP’s range of premium products and printer products has grown larger with time. However, while both have maintained a strong position in the computing industry, the two brands have acquired a leadership position by analysing and understanding consumer needs well. The financial performance of the two has also improved significantly over the past few years. Moreover, China is Lenovo’s home turf and United States is HP’s domestic market. It is why both the brands are in a very strong position and pitted against each other in a market where sales of computing products continues to be affected by the rise of mobile computing.
Overall sales and financial performance :
In terms of overall laptop sales, Lenovo has left HP behind. It has become the highest selling PC brand of the world. Apart from focusing on quality, Lenovo has managed its pricing strategy well. This has resulted in faster growth worldwide. According to statista in 2018, the gap in the sales of HP and Lenovo laptops was quite narrow during the first two quarters which widened a little in the third and fourth quarters. Again in 2019, Lenovo narrowly surpassed HP’s laptop and PC sales during the first quarter and the gap widened during the second quarter. Check out the below table for global PC sales of HP and Lenovo in 2018 and 2019.
|Quarter||HP (PC sales in millions)||Lenovo (PC sales in millions)|
HP and Lenovo are very close contenders in terms of PC sales. HP’s revenue from the sales of personal systems including PCs and laptops was $37.7 billion. On the other hand, Lenovo’s revenue from PC and smart devices was $38.5 billion. Lenovo’s sharp rise was mainly because of faster growth in Asia Pacific and North America in fiscal 2018. In China, Lenovo is already in a very strong position. According to IDC, Lenovo is leading the PC and laptop market with a 25.1% market share in 2019 and HP is close behind it with 23.7% market share.
However, the overall revenue of HP was much higher as compared to Lenovo. Net revenue of HP in fiscal 2018 was $58.5 billion compared to $51 billion net revenue of Lenovo. Gross Profit of HP was $10.7 billion in 2018 compared to $7.4 billion of Lenovo. So, the overall performance of HP was better compared to Lenovo in the past fiscal year. Moreover, printer sales accounted for around 40% of HP’s revenue in 2018. Net Revenue of HP from printers was $20.8 billion. This is an important advantage in the hands of Hewlett Packard. The company has grown its investment in printing business and acquired Samsung’s printing business (HP Annual Report, 2018). While printer sales are a major source of revenue for HP, the company is investing aggressively to grow its printer sales and reduce its dependence on the PC business.
Technology and marketing :
Technology has become a major source of differentiation in the computing industry. The demand for light weight and high performance machines has increased. Customers want laptops that are easy to carry around and offer strong performance. It is why the focus of PC brands on innovation and product quality has grown. HP and Lenovo’s spending on research and development were around the same except that HP spent around 100 million more than Lenovo on R&D. Overall, while HP spent $1.4 billion on R&D, Lenovo’s R&D expenses were equal to $1.27 billion. Brands need to constantly innovate to retain the popularity of their PCs and laptops.
In 2017 and 18, HP spent less than Lenovo on advertising and promotions. While Lenovo spent around $707.7 million on advertising, HP spent only $568 million in fiscal 2018 on advertising. Brand equity in the PC industry also affects sales and revenues. Lenovo enjoys strong brand equity in China. In the other parts of the world too, its brand equity has grown stronger over the recent years. However, apart from marketing and promotions, Hewlett Packard also invests heavily in CSR. The company has managed to build a strong reputation in both Asia Pacific and North America. For Lenovo to grow its market share further, it will need to focus on branding and marketing. HP is comparatively an old and established brand. Quality has always been one of its important strengths. Lenovo is also investing in quality and customer satisfaction. Both brands are quite aggressive about maximizing customer satisfaction and quantifying the difference in the brand equity of the two will be a difficult task.
It is really difficult to say which one of the two enjoys superior customer loyalty. However, HP is not very far behind Lenovo in terms of PC sales. Its biggest strength is its business model. The company is investing aggressively in growing its printer business. In the case of Lenovo, while its sales from Mobile Business Group has grown, PC business remains its main source of income. HP’s business is more diversified. Moreover, HP has divided itself into HP and HPE so that HP can focus solely on PC and printer business. Taken together, the total revenue of Hewlett Packard and Hewlett Packard Enterprises would be much higher. Lenovo on the other hand is comparatively smaller but has grown at a very fast rate. It has acquired a superior competitive advantage in the PC industry. However, the challenge from Hewlett Packard is formidable. HP’s business model is stronger because of higher diversification. HP looks in a stronger position overall compared to Lenovo, but based upon past two to three year’s performance Lenovo is a formidable challenger in the PC industry for HP. In terms of market cap, HP is much bigger than Lenovo. So, the business model of HP and its overall size and scale are very important strengths for it. Even if Lenovo is leading the computing market with the highest PC sales, HP’s formidable strength does not make it a second player in the PC industry but instead a different player than Lenovo which sees and plays the game differently. Restructuring of HP has given birth to some troubles and weakened its market position but the overall picture is still stronger and much larger than Lenovo.