PC Retail

HP’s Q3 profits were up 14 per cent on the same period last year – what was the main driver of this?
From a global perspective, with regards to the Personal Systems Group, we grew around 15 per cent, so about $10 billion in revenue. And shipments were up 20 per cent, so it was a pretty good quarter from a top-line point of view. What we saw was a lot of growth in the notebook segment, and so I think a lot of the success [in the Personal Systems Group] is around the continued growth in laptop sales. Those were up around 26 per cent, while desktops were up at around six per cent. So there was some growth in desktops, but the majority was in notebooks. I think the other thing we saw was a pretty balanced business between consumer and commercial customers. Both of them grew in Q3 at
quite similar rates throughout the period: around 15 per cent commercial and 17 per cent for consumer. So, a pretty well balanced business – and as you say – a reasonably good profitability.
And I think that’s driven by that balance; us continuing to stimulate innovation and having a good scale in the business. At the same time, what we’re trying to do is makesure that we have a good product in the market and great design; providing the kind of products that our customers need, so that gives us a pretty strong position in the marketplace.

Are you expecting this growth to continue into next year?
We see – certainly in the PC industry – the continuation of strong demand particularly around notebooks, and a business that continues to grow strongly worldwide. But beyond that, I can’t really comment.

You’ve been investing in your initiatives set up
to support the US channel – are there any
plans to bolster spend and support in the UK?
HP is focused on a partnership approach to the market, and that has been true for many, many years. As you say, we’ve done some extra work in the US, and we continue to do the same in the rest of Europe and the UK.
Just to give you some examples of that, on the commercial side we’re extending our Preferred Partner Programme, creating a Gold Preferred Partner to help us focus on the largest partners and those who are focusing on particular solution areas; it means we can work with them more closely. And on the consumer side – as you’re probably aware – we’re focusing on things like store-in-store, aimed at providing our customers with a better experience of HP technology and by working with e-partners to provide a strong store-in-store experience.

Which retailers have you been working with on the store-in-store initiative, and is it likely to be expanded in the future?
At the moment, what we’ve done so far is we held an event in the Harrods store-in-store, which was done with Harrods themselves and Micro Anvika as a partner. We are also doing some broader things, but I can’t really talk about them just yet.

What will the acquisition of EDS allow you to do, and what are your plans for it?
For us, EDS is seen as a key acquisition for HP overall, in terms of helping us to deliver a full services proposition. In terms of what it does for the company, it helps us scale and helps us drive even harder in to the outsourcing business.

What were you hoping to achieve with the autumn consumer event in September?
We ran an event in Berlin back in June, and I think we had some good success at that. The autumn event was to update the press and analysts on how we continue to deliver our strategy and show off the key new products – and in particular, the Christmas line-up. Key things we showed were the new HP Touch Smart IQ800. We also showed HTX high-end notebooks – a 16-inch and an 18- inch version – and then a whole range of other notebooks. And then the final thing we showed was a collaboration with fashion designer Vivianne Tam. We did some work with her at the New York fashion show, where we showed a new PC-based product which was part of her Clutch collection – a small, PC-based product – with a design linked into linked into the designs she showed off during the Fashion Week.

It was pretty different to what we’ve done in the past, and you know, hopefully showing that we’re trying to go beyond just standard PCs, and really focus around not just great products, but also great design.

Are you seeing a lot of demand for fashionable products? Is it because the market has expanded as people see their PCs as more of a lifestyle accessory than just another functional object to be used only in the home or the office?
Yes, absolutely. I think it has become – even on the basic products – an expectation that you have a good, well-designed product that looks good, and obviously, functions well.
Also, beyond that, I think people are looking to have fashionable devices – certain groups of users look to go beyond that – and this would be an example of that. A particularly fashion-conscious person into the design of the clothing they want to wear would be an example. As people begin using computers as a core part of their life, they stop being something they just use in the office a few hours a day. Rather, they have become something people want to carry around with themselves and they want it to match their identity. They’ve also become a part of how they want to be seen by other people. Design has become a very important part of the product. If you look at the notebooks we produce as a specific product, we have imprint designs. There are the ones we showed off that had a light blue colour but not just a colour on the notebook, a nice, interesting design that looks good on the outside and also on the inside. There also has to be useful things – functionality – like remote controls and full TV functionality, as they are all part of what we feel we need to deliver as a vendor these days, not just for customers, but also to differentiate ourselves from the competition.

Now you’ve signed the new $660 million deal with BT, how will the two firms be working closer together?
It’s an extension of the BT/HP alliance, which we’ve had since 2004, so BT and HP have worked on a lot of different areas since that time particularly around us delivering IT infrastructure to customers.
This is really taking that one step further, and particularly helping end customers between BT and HP with their network IP services, making sure they get subsequent best cost, the best flexibility and also the right kind of service level. So we view it as very important in relation to what we’re doing, and as I said, it reinforces a piece of business that’s actually already been worth more than $5bn to us since its inception, and just reinforcing that and other services that go through it.

We’ve heard reports that up to 24,000 workers could be cut globally, will this impact the UK dramatically?
We don’t comment on the country breakdown of those numbers.

How strong is the UK and Ireland to HP in terms of all the other territories?
As you can imagine it is a major geography for us at HP. But in terms of the split by market, that’s something we don’t actually comment on beyond the figures we release through our financial data reports.

Netbooks are big business at the moment, do you think this trend will get even larger or do you think they are a fad?
I think what we do see at the moment is that there is a demand out there. We have a product ourselves in that space and we are seeing a demand there. I think the important thing here is particularly how netbooks are defined and what the customers want. They are at the lower end of the market, but we do feel they have a space, but the important thing there is their place matches with what people are looking for, and that is a small, light device for when they are on the move, probably as a second device, or even a third device, or perhaps for more limited usage.

And I do think that’s the important part and I think that’s why there has been a little bit of confusion in this marketplace. So while these are products that are very good for what they are designed to do, they do tend to have more limited functionality – which you might expect given their price range – and so I think where there is an issue is where people potentially buy them or think about buying them with the wrong expectations, either because of their own unrealistic expectations, or because it hasn’t been managed by people in the industry or the person they buy it from.

The worst thing for us is where people buy a product and it doesn’t meet their needs. So as long as people understand where [netbooks] fit in, then they are of benefit. I think it is important that they continue to be a part of the market, but that we as an industry, and the partners around the industry, do make the average person on the street understand where they are going to be good products and where they will be less useful.

So it’s going to be a channel wide issue, to help customers understand that these are – as you said – possibly second or third devices, with limited usage, rather than people going around thinking that they can pick one up for £200-£300 and they can replace the desktop or laptop in their living rooms?
Yes. Obviously, it’s difficult to generalise, especially now that this market has broadened, but I do think if people are looking towards the low end of the product spectrum, those machines can be fine for doing email and web access, but they’re not really designed to go beyond that, and that’s where you’ll want a classic notebook. And if they want more and more functionality, they have to go further up the notebook range. As part of the range, they’re fine and it’s great that they extend the availability of computers but if people are buying these as main computers then they need to be helped to understand what they are buying.

What do you think of the long-term chances of the desktop PC? Will there be a point where almost everyone migrates to laptops?
What we are seeing at the moment in the industry is I guess, the 80/20 split between the two form factors. Certainly on the consumer side, it has moved very dramatically, in fact, pretty quickly over to notebooks, but a little less quickly on the commercial side. I think what you are seeing is that the availability and functionality of notebooks – particularly in the consumer space – is that a very high percentage of what people want to do with computers can now be achieved with the average models currently available on the market.

My view would be that I don’t think it is going to move to 100 per cent to laptops, because there are areas where a desktop or similar device will have more functionality; the obvious areas being gaming machines. So something like the Blackbird – which we’re showing in Harrods – which is a high end gaming machine, focused around real high end processors, up to four processors, lots of hard drive space, high speed graphics etc. That kind of area will remain the preserve of the desktop.

Another area would be around the centre of home entertainment within the household, and particularly there you could see traditional desktops with a large amount of storage being used, such as one of our home servers – which we also produce. Or it might be something like the Touch Smart computer that I mentioned earlier, which is an all-in-one device that is suitable for sharing in the household and is a fixed device with a 25-inch screen. So I think there are still a number of areas where desktops still make sense, but I do see the vast majority have moved or will be moving to laptop functionality where it
meets their needs.

I think on the commercial side, it has been a bit slower; there are a couple of reasons for that. Obviously in businesses you have got more requirements for equipment that can either be shared where it is at a fixed location, for example in a call centre, and also we do see that either the desktops in that environment or even thin clients can actually give very good price points and a very good cost of ownership for companies. So as I have said, we’ve seen that move happen and we expect it to continue, but we do expect to see a number of areas where the desktop or an all- in-one solution still makes a lot of sense and will continue to prevail.