Business Strategy – India – November 2008

How is HP dealing with a challenging economy?

Leading tech companies (including Intel and Cisco) believe that given the constraints of the economy today and the likely global recession, customer spending on technology will decline rapidly impacting both consumer and corporate purchases. Declining sales figures in October and November (2008) reflected on this fact. Hewlett Packard (HP) on the other hand has delivered a contrastingly optimistic forecast and expects significant growth with respect to the negative outlook for the coming quarter. How is it able to do so? A look at some components of HP’s business strategy:

HP and its Business Strategy

Wide Variety

H.P. offers a wide variety of products to consumer and corporate customers which means that strength in some businesses can offset weakness in others.

Repeat/Recurring Sales and Long-term deals

HP’s stable revenues come from a large amount of recurring sales – about 40 percent (65 percent of its profits) from long-term deals.

Declining sales of major printer and PC products

At HP, printers are often sold at a loss. Fewer printers sold imply higher HP profits. On the other hand, PC losses have a marginal effect on H.P.’s overall profits.

What the CEO and Analysts say?

Mark Hurd, Chairman and CEO of HP remarked that HP’s ability to execute in a challenging marketplace helps it to differentiate against its competitors and therefore it is able to increase its market share and earnings. Other analysts opine that HP is a really well-run company perticularly from a cost perspective.

Cutting costs and layoffs

The company was aggressively cutting costs and even began laying off workers (around twenty-five thousand) before the declining economy had its effect on the tech industry.

HP is optimistic, but will it be able to match its 5 percent (approx.) growth in recent quarters. Given the economic gloom, at least it has done well competitively and probably will emerge from the current economic environment as an even stronger force.

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