Which PC maker will fare best in a bad economy?

Hewlett-Packard's broad price range and product lineup could keep the tech giant rolling while others suffer.

Commercial and consumer spending on technology is expected to fall off in the next year, and the PC industry is bracing for the impact.

Already beginning to feel the effects of sagging average selling prices, thinning margins, and oversaturated markets in North America and Europe, there's clearly going to be a shakeout among the biggest players as the economy enters a full-blown recession. (Of course, many believe we're already in one.)

Intel's warning this week that the company sees "significantly" lower demand for its chips signaled that the worst is still to come for PC makers as they navigate the current economic storm. So how will the five biggest producers of PCs, which account for about 54 percent of all PCs sold, fare as demand wanes and prices drop?

hp and pc makers

No surprise, it's Hewlett-Packard, the top PC vendor in the world for the last two years, that appears best positioned to weather a recession.

There's bound to be a whole lot of uncertainty among PC makers: uncertainty about what's the right combination of products that will attract consumers during a recession and beyond, and fear of overproducing products that are too expensive for increasingly price-conscious consumers and budget-constrained IT departments .

In other words, with fewer people and businesses shopping for PCs, "where do you want to emphasize your opportunity" and pick up market share from competitors, said Richard Shim, PC industry analysis with IDC.

For HP, already a third of its business comes from software, services, and enterprise storage, while another third is derived from selling PCs and consumer devices. The rest is from its printing business and other investments.

"Obviously the more diversified your product selection is the more chance you have to be positively impacted by whatever sectors outperform the inevitable weakening," said Stephen Baker, vice president of industry analysis for The NPD Group.

This seems to apply well to HP. Within its lineup of products, it's fairly well distributed: consumer and small, medium, and enterprise laptops, desktops, servers, storage, printers. The brand also has a presence in all major markets, including the ones that still have a high demand for PCs, like Latin America, Central and Eastern Europe, and the Middle East.

But as consumers become more focused on price, it remains to be seen how HP will balance that with some of its more high-end product lines. Its high-end designer PCs from its Voodoo PC division could be an increasingly unattainable luxury to a lot of consumers.

Accordingly, just last week HP announced it was cutting the price of the Envy 133 notebook from $2,100 to $1,900, and it also bumped the price of its Blackbird 002 gaming desktop from $2,000 to $1,800. HP did not respond to requests for comment about whether we would see more price cuts in the future, but it doesn't seem unreasonable as consumers guard their wallet more closely in the coming year.

On the other end of the market, HP just recently released a full lineup of Netbooks , or smaller, lightly featured laptops for between $400 and $700. Though meant for surfing the Web, and some productivity applications, they're not sufficient for a full computing experience. But the attractive price and growing awareness of the category could help HP weather the storm.

Dell better positioned now
Chief rival Dell has undergone a huge makeover recently, and while it is still trying to find ways to save on costs , it's probably better positioned to ride out a recession now than it was two years ago when its main business was direct PC sales in North America.

Since then, Dell has expanded to include a successful retail business and emphasis on services, software, storage, and servers. It has also moved into emerging countries like China and India--whose markets have yet to be saturated with PCs like those of the U.S. and Western Europe--and emphasized a global strategy of pushing different types of notebooks, lately Netbooks, and its small business-oriented Vostro line.

As a result, half of Dell's revenue now comes from business conducted outside the U.S. That's promising, considering where the company has come from. But it's still a company in transition, and while trying to cut costs and develop its burgeoning retail and global sales, it's not as well positioned as HP.

Acer is more of a question mark: though the company has been incredibly aggressive around pushing notebooks and Netbooks , particularly in Europe, it's sacrificed price for market share. While that does put pressure on HP and Dell in regard to price, that leaves some question about a more long-term plan for success and profitability, said Shim of IDC.

You can do what Acer has been doing, he said, "but you need to back it up with higher performance or higher-end products as well."

Lenovo, Acer's closest rival, could be perhaps the worst positioned of the top five in terms of staying afloat during the downturn. IDC is predicting a significant slowdown in IT spending next year, and Lenovo sells mostly commercial PCs. The company is already seeing signs of the slowdown, reporting a 78 percent drop in quarterly earnings last week. It's only recently drummed up a consumer business, is so far not well established as a consumer brand, and is positioning the Ideapad line as a premium product.

But looking even further into the future, Lenovo is well established in its home market of China, which is still a growing market for PCs.

Toshiba is heavily invested in the consumer market and particularly in small and medium businesses. As consumer spending falls, it's hard to spot places where Toshiba, which shipped 3.7 million PCs in the third quarter, will gain market share.

What's more likely is the biggest PC vendors--like HP and possibly Dell--with their their scale and reach into a broad variety of markets, will just get bigger.

About the author

Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.

 

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