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Epiphany or Disillusion: What’s Driving OEMs Today?

I don't know about you, but when I read that {complink 2376|Hewlett-Packard Co.} intends to break off its personal computer business, I couldn't help thinking many high-tech companies are having great difficulty inspiring confidence among investors and consumers that their go-to-market strategy is sound as market shifts bring new demands on their ability to compete.

In a statement outlining its plans last week, HP said it would buy the enterprise software firm {complink 549|Autonomy Corp.}, find a way to separate its PC business, and “discontinue operations for webOS devices, specifically the TouchPad and webOS phones. The devices have not met internal milestones and financial targets.” (See: Apple Can Be Beaten and Muddled Thinking Sinks HP.)

The hope is that these developments will give HP the breathing space it needs to focus more on the areas it expects will help it thrive. The new strategy is “built on cloud, solutions, and software to address the changing requirements of our customers, shaped heavily by secular market trends that are redefining how technology is consumed and deployed,” Léo Apotheker, HP's president and CEO, said in another statement. Since March, “we have observed the acceleration of these market trends.

There are no clear indications of how well HP will do in the cloud computing market, which is rife with competition from the likes of IBM and Dell. However, perhaps HP has figured it might have a better chance competing with IBM (which sold its PC business in 2004) than Apple. The question is when HP had this epiphany.

The same question was asked this year when the Taiwanese computer maker {complink 38|Acer Inc.} announced that its CEO, Gianfranco Lanci, had resigned over falling PC sales, which resulted in part from consumer thirst for Apple iPads. The big question then was when Acer officials realized their company needed to compete more aggressively in the tablet market. Why didn't it react sooner to shifts in consumer demand?

Acer said in a statement: “On the company's future development, Lanci held different views from a majority of the board members and could not reach a consensus following several months of dialogue. They placed different levels of importance on scale, growth, customer value creation, brand position enhancement, and on resource allocation and methods of implementation.”

The difficulties that HP and Acer are experiencing are similar to those facing {complink 1131|Cisco Systems Inc.}. John Chambers, its CEO, addressed these difficulties in a staff memo issued in April. He acknowledged that the company had been “slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable.”

A dangerous pattern is beginning to emerge. These companies want to convey a sense of urgency and direction, but the reality is that their words and the results of their actions are inadequate at best. Too many high-tech companies are having trouble with the same problems. They have not reacted well to change. They have not developed products that can compete on price and features, and they have not executed in accordance with the level of skill and experience they profess to possess.

Furthermore, supply chains have been lethargic and incapable of keeping up with the pace of rapid technological change. The effects are starting to show in depressed stock prices. It's obvious that HP, Cisco, Acer, and other OEMs struggling with the new realities of their industry will never be the same. The question is how they will evolve. Who will they partner with? Who will they acquire? What will their products look like in five to 10 years? And which companies will acquire the business segments of other OEMs?

In the meantime, confidence is sagging as onlookers wait to see whether these companies will be able to find solid ground in an unprecedented landslide of change.

6 comments on “Epiphany or Disillusion: What’s Driving OEMs Today?

  1. Matthew Barazin
    August 24, 2011

    Great Post!

    I agree that OEM's are not 'stepping up to the plate' in the face of changing markets around them, shifting consumer demand and intense competitor presence (Apple). However it would be interesting to discuss what the greatest catalyst of change is at the moment…

    I definately do not know the answer however I expect there to be differing views, I look forward to the talks that will take a place on the topic, the speculative theories that may arise and maybe some solutions presented to the front as well.

    As an actor in the vast semiconductor industry I think I can speak for all readers and participants when I say business has been 'flat' – discussing some of the macro-economic reasons behind this valley may bring up some interesting touch points to discuss with suppliers, customers and ultimately help everyone execute their own micro adjustments.

    Sincerely,

    Matthew Barazin

  2. Daniel
    August 25, 2011

    Nicole, Hp has developed a new business strategy. Recently in one of the international online technical/business magazine that HP have a plan to unarm their PC/Laptop business and plans to continue the same through Compaq. (I read it exactly one month back). In that article, it further cited that the much talked webos is going to be use by QUALCOMM.

  3. The Source
    August 27, 2011

    Dear Matthew,

    In your response you alluded to the fact that Semiconductor sales have been flat.

    Undoubtedly, the great recession has had a very significant impact on electronics sales, yet companies like Apple and Intel are operating in the same economic environment as everyone else, and they are thriving.

    I note that the latest figures from the Semiconductor Industry Association show that there was a 3.7 percent increase in semiconductor sales in the first half of 2011 compared to the same period last year.  However, there was a 1.5 percent decrease in sales in June compared to the prior month.  You can read that here:  http://www.sia-online.org/news/2011/08/01/global-sales-reports-2011/global-semiconductor-sales-grow-3.7-in-first-half-of-2011/

    It’s still a tough market, and it's obvious that with the U.S. and Europe being in such a slump this has had a real impact on sales of consumer electronics. 

    I wonder if you feel as I do that by now the BRIC countries and their growing economies should have given the semiconductor industry the kind of boost that would have resulted in the industry seeing better growth figures despite those lagging economies of Europe and the U.S.

    I guess that hasn’t happened.

    Thanks for reading my post, and for responding to my article.

    Nicole

  4. The Source
    August 27, 2011

    Dear Jacob ,

    Sure, HP has a plan and hopefully that plan bears fruit in the coming years.  Always remember, however, that before HP decided to separate its PC business it had a plan to grow that business.  Before it decided to get rid of its webOS devices, specifically the TouchPad, it had a growth plan, and a pretty recently developed plan at that.

    In March of this year, HP CEO Léo Apotheker outlined the company’s strategy then and one of the plans outlined was:

    HP intends to build webOS into a leading connectivity platform. As the world's No. 1 maker of PCs and printers, HP has the potential to deliver 100 million webOS-enabled devices a year into the marketplace, and HP plans to use that scale along with leading development tools to build a robust developer community that is eager to access every segment of the market and every corner of the globe.

    You can read the rest here:  http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-newsArticle&ID=1539078&highlight=

    Jacob, it’s one thing to have a plan, it’s another to recognize the shifts in the market that the plan is designed for and to follow through on that plan in a way that yields results.

    I sincerely appreciate you taking the time to read my articles, and for sharing your thoughts on this subject.

    Nicole

  5. Taimoor Zubar
    August 28, 2011

    I am not sure if I would call HP's strategy a good one, but it's certainly a very risky move. PC division has been HP's one of the most successful divisions within HP and, despite the dropping PC sales, I don't think the strategy to shut it down completely will prove to be effective enough. A better approach may have been to restructure the division, cut costs or bring about some other changes. Taking money out of it and putting it in some other risky project is not very smart thinking.

  6. The Source
    August 28, 2011

    Dear TaimoorZ ,

    We shall see how farsighted HP’s decision to separate its PC business is.  I do think that HP is going to face stiff competition from IBM, Dell, Apple and other companies in many of the areas HP says it wants to compete in, particularly in cloud computing where so many companies have a very sound strategy.   

    Thanks for reading the article and sharing your thoughts.

    Nicole

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