HP versus Lenovo contrasts highs and lows
Compare and contrast two of today's leading vendors to appreciate their good points, says Larry Walsh
HP just can't seem to escape the performance challenges that have sapped the company for the last two years. While CEO Meg Whitman and team continue to make adjustments, PC and now enterprise product sales remain weak, postponing any hope for growth until 2014.
Meanwhile at rival Lenovo, now the world's largest PC vendor, saw its most recent quarterly profits jump 23 per cent and revenues increase nearly 10 per cent.
It now sells more tablets and smartphones than conventional desktop and notebook computers. Moreover, Lenovo sees further growth potential as it continues to expand into entry-level servers and storage, the mainstay of HP's enterprise division.
The contrast in fortunes and performance is making HP versus Lenovo one of the best fights in the tech market. Why is Lenovo doing so well while HP continues to struggle?
A few factors are making a difference. Let's break it down.
Global revenue distribution
Lenovo and HP are global companies. HP's strongest market is North America, where Lenovo gets most of its sales in its home market China. It's not a coincidence that part of HP's problem is struggling sales in China, where domestic competition continues to get stronger. Lenovo has done incredibly well in exploiting opportunities in emerging markets. HP, like other American tech vendors, once relied on emerging markets for growth; that's changing as foreign competition is catching up.
Europe weakness
The other market HP plays well in is Europe, which continues to suffer from anaemic economic conditions. European markets are hardly in a position to offset challenged sales in Asia, where Lenovo has an advantage. Lenovo is playing well in Europe, too, but the business isn't so big. Europe's economic woes are not having the same impact on Lenovo as they are on HP.
Mobility
HP has all but missed out on the mobile revolution. The TouchPad tablet fiasco ignited a near meltdown and is the source of its continuing troubles. Previous experiments in smartphones were miserable, and the TouchPad was a disaster. Lenovo is one of the largest smartphone vendors in Asia and is planning on bringing its handheld devices to the US. Lenovo is also a serious player in tablets. While HP and Lenovo both offer Windows and Android tablets, Lenovo doesn't have HP's spotty history with these devices. And while smartphones are mostly consumer devices, the profits they generate tend to fuel other business development. Where HP is bleeding money, Lenovo is offsetting weak products with smartphone profits.
Tight focus
HP is trying to fix multiple problems in vastly different units. The surprise troubles in its enterprise unit underscore competitive challenges HP is facing against companies like Cisco Systems and IBM. HP's answer is acquisitions, which will - in theory - capture new technologies, customers and revenue. Lenovo, on the other hand, does a few things and does them well. Lenovo is a PC vendor, and it arguably has the best business machines on the market. Its partnership with EMC to expand into server, storage and backup is creating adjacent opportunities for it and its resellers. In short, Lenovo doesn't have to support a massive organisation and product line; it can devote more resources to its smaller product line.
Different competition
HP competes with multiple vendors on different commercial and consumer levels. It has to worry about IBM, EMC, NetApp and Cisco, as well as Dell and Lenovo. That's just on the surface. Lenovo's competitive fronts are more clearly defined, as it primarily competes against just HP and Dell in the North America market. It's far easier to react and make strategic plans when you don't have to deal with innumerable contingencies.
Printers and ink
HP's cash cow was its printer division. Even when PC sales fluctuated and enterprise products suffered, the printer unit and its ink sales were enough to cover other units' losses. No more. Printer and consumable sales are down, removing one of the great advantages HP had. Lenovo never had printers, and likely never will. Its revenues are what they are, no trickery involved.
Cloud computing
The advantage in cloud computing goes to HP, in theory. Lenovo has no real cloud products although that's a critical component in cloud utilisation. You can't reach the cloud without an end point. HP has invested billions of dollars in building cloud capabilities and software, and it's one of the pillars of its restoration plan. Unfortunately for HP, those investments have yet to pay off. It could be argued that HP's cloud ambitions are more a distraction today than a benefit.
Channel performance
Lenovo has done a masterful job of engaging and enabling its channel. Lenovo has seen a 30 per cent increase in the number of partners selling its products in North America; that increase is coming at the expense of HP and Dell, which is facing similar challenges. The 2011 management fiasco that sparked HP's woes sapped partner confidence from which it's only now beginning to recover. If the channel isn't actively recommending products, it will hurt sales. Today, when it comes to PCs, Lenovo is the preferred vendor; HP is the alternative.
One direction
It's stating the obvious but HP is trying to fix a broken system. The troubles that started in 2011 were the result of years of management missteps, poor decisions, poor products and false assumptions. It could even be said that HP is paying for arrogant decisions in the past. Bottom line, HP is trying to restore glory, stop the bleeding and return to growth. Lenovo, on the other hand, has no such legacy. Its only direction is up. Lenovo is about a third the size of HP, and is doing what it does with fewer products and services. Every expansion it makes will bring it closer to HP in size. HP, on the other hand, will always have a difficult time growing because of its large size.
To say Lenovo is doing everything right and HP is in an impossible situation is just wrong, however. It's worth noting that Lenovo went through its own near-death experience in 2007, just two years after it bought IBM's ThinkPad unit. Sales were down, product quality declined and the channel disengaged. Lenovo took corrective measures and embarked on a strategy that has put it in the position it is in today.
Where HP is consistent is transparency. Under Whitman, HP has been forthright about its challenges, hasn't shied away from bad news, and set appropriate expectations. Whitman has said it might be 2016 before HP returns to a stable position, and even then growth will be low. It's that candour that is winning back partners and customers.
And it's not all bad news for HP. Turning around a company of that size takes time. When Lou Gerstner took the reins at IBM in 1993, Big Blue was on the verge of bankruptcy and investors were calling for a break up of the company. By the time he left in 2002, IBM was thriving because he and the management team made hard choices and strategic investments that took time to unfold and bear fruit.
It's easy to get caught up in headlines and bad news. HP is now playing a long ball, something it forgot to do over the past decade. It is paying for its mistakes and looking to the future for success. Success may come, but it will take time.
Larry Walsh is president and chief executive officer at Channelnomics
As part of our special editorial partnership, CRN is republishing this article from Channelnomics