HP looks to edge into Sony's market

In Hewlett-Packard's consumer division, the enemy used to be Compaq Computer. Suddenly, it's Sony--and HP is unleashing new printers, PCs and sales alliances to take on the Japanese colossus.

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Stephen Shankland
4 min read
SAN FRANCISCO--In Hewlett-Packard's consumer division, the enemy used to be Compaq Computer. Suddenly, it's Sony--and HP is unleashing new printers, PCs and sales alliances to take on the Japanese colossus.

HP's consumer division has begun an ambitious expansion, taking on consumer electronics companies instead of just computer companies, said Pradeep Jotwani, general manager of the company's consumer business division. He spoke this week at the Banc of America Securities conference here.

The division's new motto: "We will be the leading provider of personal digital solutions for everyone's e-life," Jotwani said.

As part of the consumer push, HP will introduce a new printer in October designed to work directly with Internet-enabled television, Jotwani said. In addition, the company will expand its efforts to sell its Pavilion line of home PCs internationally.

HP will launch the Pavilion PC line in Japan in two weeks and in Germany later this quarter, Jotwani said. Revenues will start arriving in the first quarter of HP's fiscal year, which begins in November.

To gain a foothold in the Japanese consumer market, HP and Japanese venture capital firm Softbank are setting up an e-commerce company to sell consumer products, Jotwani said. The company will be formed "in the next couple months" to take advantage of the Christmas buying spree.

"We hope it will be the largest e-commerce provider for the consumer information technology space for Japan," Jotwani said. The company will sell HP goods initially but will expand to other brands later.

An "ambitious" plan
Roger Kay, an analyst with International Data Corp., says HP's aggressive consumer effort will require plenty of work.

"I'd say it's ambitious," Kay said. "PC companies typically don't have the same kind of dynamics as consumer electronics companies. You have to have a tremendous amount of marketing ability, as well as the ability to manufacture and distribute on very low margins."

HP's success selling consumer PCs, though, has helped carry the company to its spot as the No. 3 PC seller worldwide, Kay said. "They've had the highest growth rate of any PC company in the last couple quarters, and a lot of that has been the consumer operation," he said.

HP acknowledges the magnitude of its new goals.

The company's 1999 consumer revenue of $12.8 billion tops Compaq's $6 billion, Gateway's $4.6 billion, Dell Computer's $2.5 billion and Apple Computer's $2.3 billion, Jotwani said. But HP didn't even bring in half of Sony's $34.1 billion, he added.

The new consumer ambitions are just one of several transformations under way at HP since chief executive Carly Fiorina took over 14 months ago.

Its high-end server business has just been retooled with the introduction last week of the Superdome Unix server to take on Sun Microsystems. The company is considering acquiring PricewaterhouseCoopers' 31,500-person technical consulting operation to become more like IBM. PCs have become surprisingly profitable again. And the printing business is undergoing a reorientation so that people can use the Internet to print tickets, shipping labels, stamps, greeting cards, photos and other items.

In the longer term, HP is working to separate the concept of printing from the concept of computers. Jotwani said he wants to have printing capabilities built into digital cameras, cell phones, handheld computers and even pagers.

"The time for digital imaging has arrived. By 2002, sales of digital cameras should overtake conventional film cameras," Jotwani said. HP is already the top seller of photo printers, the top flatbed scanner company and one of the top five digital camera companies, he boasted.

The initiative makes sense, given that HP makes more revenue selling printer supplies, such as ink cartridges and high-grade printer paper, than it does off the printers themselves, said ARS analyst Chris Barnes. HP has 55 percent of the inkjet printer market, he said, with Canon in second place and Lexmark in third.

HP scrambling
HP, which had promised the TV printer by Christmas, appears to be ahead of its own schedule, Barnes said. But HP is well behind Canon, which introduced its TV printer last Christmas. "Canon is way ahead of HP in this respect. HP has been scrambling to catch up," he said.

The market is still small and new, however. "People are still getting used to the idea of surfing the Internet on TV, much less the idea of reading email and printing Web pages on TV," Barnes said. "We're still talking about a very young market."

PCs are a well established market, but HP is starting almost from scratch in the home market in Japan and Germany, where its sales don't even break into the top 10, Kay said.

In Japan for the second quarter of 2000, the top three brands were NEC, Sotek and Fujitsu-Siemens, which together have more than half the market. IBM is the top U.S. company, Kay said, and Apple, Compaq and Gateway also are ahead of HP.

"The thing about the Japanese market is you need a huge amount of investment to go in there. You have to lease office space, hire locals, create a real market presence to make sure people believe you mean business," Kay said. On the flip side, customers tend to be loyal after being won over, he said.

In Germany, Fujitsu-Siemens and Compaq were the top consumer system sellers for the second quarter of 2000, with 26.7 percent and 19.6 percent of unit shipments, respectively. A host of smaller players, each with 4 to 6 percent of the market, all beat out HP.