Losing Market Share

By Eric Nee  |  Posted 01-17-2003 Print

Losing Market Share

Yet investors seem to be taken with HP's strategy, betting that in the short term it can cut costs faster than it loses business, resulting in higher profits. That appears to be working for now, but the bigger problem HP faces is that it is still losing market share to Dell in computers.

Consider what happened to HP's PC business. For a brief moment after acquiring Compaq, HP was the number one PC seller in the world, but Dell quickly passed HP, probably for good.

HP now looks like the mirror image of IBM, with hardware comprising 65 percent of revenues, and software and services just 18 percent. (Hugely profitable printing supplies make up much of the remainder.) But without a strong portfolio of software or enterprise services, all HP has to offer in servers is price/performance, a game it cannot win against Dell. And looming ahead is Dell's plan to take on HP's golden goose—printing.

Sun Microsystems believes it can fight on all fronts. On the one hand, it is trying to be the Singapore Airlines of the computer industry: a boutique provider of special-purpose computers and software—such as powerful engineering workstations and servers—that some customers will pay more for. At the same time, Sun thinks it can compete directly against Dell with low-priced, general-purpose Linux servers. This is the same mistake the airlines made: thinking they can run both a high-priced and a low-cost airline at the same time. It's as if Singapore Airlines were to try to compete against Southwest on the Houston-to-Phoenix route. It can't be done.

Like Southwest, Dell has dramatically altered the landscape of the computer industry. To compete against Dell in computers, and increasingly in other parts of the hardware business, older firms are being forced to become more efficient, or get out and find other ways to meet their customers' needs. IBM is the one firm that has figured this out. The question for HP and Sun is whether they will follow suit, or go the way of United Airlines.

Eric Nee, a longtime observer of Silicon Valley, has served in a variety of editorial positions at Forbes, Fortune and Upside magazines.


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