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HP looks to Windows XP to bump PC sales

Hewlett-Packard is betting the Oct. 25 arrival of Windows XP will boost PC sales, says Chief Executive Carly Fiorina.

CUPERTINO, Calif.--Hewlett-Packard is betting the Oct. 25 arrival of Windows XP will boost PC sales, Chief Executive Carly Fiorina said Wednesday.

"We are hoping for and preparing for a jump in the (PC sales) category with the launch of XP," Fiorina said at a news conference during an otherwise dour meeting with financial analysts Wednesday.

The expected boost could be significant. The arrival of Windows 95 and Windows 98 sent unit growth rates for PC sales up by double digits for several months, said Pradeep Jotwani, president of HP's consumer business organization. "I certainly expect that" growth to occur again, he said, with Windows XP, the first operating system designed for home users that's based on the Windows NT and Windows 2000 code base instead of the DOS and Windows 95 code base.

But while unit sales may pick up, it's not clear whether the demand would ease the pressure squeezing PC prices. "Whether prices go up or not is a different question," Jotwani said. "We would like to see it, but we're not counting on it."

Rising PC sales probably won't result in a temporary cease-fire in the price war, said J.P. Morgan analyst Daniel Kunstler. Companies will continue to focus on increasing their market share.

The news comes amid difficult times for the PC industry. Researcher IDC on Wednesday lowered its predictions for PC spending, projecting that the slump will last until 2003.

Windows XP is a key product for Microsoft as it tries to drive upgrade revenue and move customers to less crash-prone software. But in releasing XP, which is geared for businesses as well as home computer users, Microsoft risks stepping on the toes of the adoption of XP's predecessor, Windows 2000.

HP's PC business is at breakeven or slightly profitable, and the company won't cut prices further to compete in the price war that has erupted among Dell Computer, Compaq Computer and Gateway, Fiorina said. "We are not pricing our PC business to gain share. We will not engage in bloody price battles," she said.

But Kunstler believes HP will be forced to participate. "They might not instigate (price-cutting moves), but they can't sit on shelves with stuff that's priced high," he said.

The success of Microsoft's marketing efforts will determine the extent to which PC sales get a boost, Kunstler said. "It's really up to Microsoft to say, 'Hey, this is how we're going to help (PC makers) out.'"

Though Windows XP comes in a business edition, Kunstler sees it largely as a home-computer product. He said companies likely will wait for its successor, code-named Blackcomb. "I think XP is a consumer phenomenon."

In her presentation to analysts, Fiorina downplayed the importance of PCs to the company. "I would not describe the PC business as strategic in the same way printing and imaging is or the way the always-on Internet infrastructure is or the way services are," she said.

HP considers consumer PC sales a bellwether for the rest of the computing industry, Fiorina said. The drop in U.S. consumer PC sales late last year presaged a much broader computing spending slowdown, she said. HP saw the same pattern repeat itself in Europe starting in February, and it's now happening in Asia, she said.