It isn’t your father’s PC industry anymore

My first PC was an IBM PC with an Intel 8088 microprocessor, two floppy disk drives and a whopping 64K of RAM (not 64MB or 64G, the 64,000 variety) – and it cost about $4000 in 1985 (but my father worked for IBM so we got it for the employee discount price of something like $2700). HP is currently selling a laptop through WalMart for $298 (or $148.47 in 1985 dollars, http://data.bls.gov/cgi-bin/cpicalc.pl). 

The PC industry has gone through many stages in which one firm was on top. Apple started it, then IBM took over. IBM tripped in the early 90s and Dell took over. Dell started to stumble about 5 years ago and now HP is on top as we see in the following graph reported in WSJ (HP wields its clout to undercut rivals, 9/24/09):

hp share

So how is HP able to do this. First, they are working with small margins, razor thin 4.6% margins. Next, the article gives some other clues to their strategy.

 (1) “Simplifying the specifications of the product”

i.e., reduce product variety so that contract manufacturers can have higher volumes and thereby offer lower prices. This is a standard recommendation in an OPs class.

(2) “By getting orders in earlier, H-P could save on component and manufacturing costs, which are cheaper if they’re ordered far in advance.”

This line is intriguing. If component prices are falling, then ordering early is a disadvantage, not an advantage. This suggests several possibilities. First, component prices may not be falling rapidly and HP is better off giving suppliers a long lead time to get an advance purchase discount from them. Second, component prices are still falling but it is cheaper for HP to take on that risk than to let the suppliers take on that risk – i.e., if they take on that risk then they have to charge more, which is passed on to HP.

As I said, it isn’t your father’s PC industry anymore. What makes me think it could be entirely different in another 5 years?

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2 Responses to It isn’t your father’s PC industry anymore

  1. charlie porcaro says:

    PCs today have far fewer vendors but more resemble the small appliance market. The CPU roadmap is so fractured that upgrades or repair is nearly impossible. Each store chain has it’s own units. Buy the similar HP units from say Walmart, Best Buy and Staples for example. The CPU, hard drive and memory size are all different. Even the power supplies are not interchangeable. This locks the consumer into that vendor/store for any support or repair of the unit. I have had to discard units bought at CompUSA or Circuit city because the power supply or memory or hard drive was proprietary to those particular stores. Getting ink cartridges to 2 yr old printers has also become an exercise in futility. So formerly repairable units are recycled because you can’t find drivers after the hard drive crashed or a power cord for the otherwise functioning monitor or cartirdges for the printer. We’ve outsmarted ourselves!

  2. martin says:

    I can see that you are an expert at your field! and your information will be very useful for me.. Thanks for all your help and wishing you all the success.

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