Why Windows XP replacement is helping HP grow its PC business

Market Realist

Must-know: Why does HP keep failing to grow its business? (Part 5 of 9)

(Continued from Part 4)

The Personal System segment is HP’s largest segment

In the prior part of this series, we discussed how HP (HPQ) continues to fail to produce overall revenue growth. However, during the company’s recent earnings announcement for the quarter ending April 30, HP mentioned that although consumer PC sales were down 2%, commercial PC sales grew 12% year-over-year. The Personal Systems segment showed a 7% increase in year-over-year revenues, at $8.2 billion. The Personal Systems segment is HP’s largest segment in terms of revenues and it derives about 90% of its revenues from commercial and consumer PCs, while thin clients, tablets, POS systems calculators, and other accessories contribute little to this segment.

A slower-than-expected decline in PC shipments

Analysts widely predicted that the PC market would see a rapid decline due to the emergence of smartphones and tablets as the preferred household device. However, the PC market defied this trend. Gartner came out with a report claiming that the PC market declined only 1.7% in Q1 2014 compared to Q1 2013. If HP can continue to gain share in this market, it will help ETFs such as the SPDR Morgan Stanley Technology (MTK) and First Trust Exchange-Traded Fund II (SKYY), which have high exposure to HP. Overall PC shipments declined slightly, from 77.9 million in Q1 2013 to 76.6 million in Q1 2014. Gartner cited the reason for this slow decline to Microsoft’s (MSFT) withdrawal of Windows XP support.

Lenovo surpassed HP in the PC market

As the chart above shows, Lenovo (LNVGY) experienced the fastest growth in the PC market, increasing its market share from 14.9% in Q1 2013 to 16.9% in Q1 2014. HP, meanwhile, lost its top position, when its market share could only increase from 15.1% to 16.0% during the same period. However, HP’s increased market share was good enough to grow its revenues in this segment despite the overall decline in the PC market. Dell also increased its market share, from 11.2% to 12.5%, while Acer Group (ACEYY) and Asus’ (AKCPF) market shares remained in the single digits.

The end of Windows XP support is the key reason for the slowing PC market decline

According to Mikako Kitagawa, principal analyst at Gartner, “The end of XP support by Microsoft on April 8 has played a role in the easing decline of PC shipments… All regions indicated a positive effect since the end of XP support stimulated the PC refresh of XP systems. Professional desktops, in particular, showed strength in the quarter. Among key countries, Japan was greatly affected by the end of XP support, registering a 35 percent year-over-year increase in PC shipments. The growth was also boosted by sales tax change. We expect the impact of XP migration worldwide to continue throughout 2014.”

Continue to Part 6

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