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HP climbing to the top

The company appears to have the right stuff to be one of the top PC hardware makers. It remains to be seen if it can pull it off.

On paper, Hewlett-Packard appears to have the technology, corporate presence, financial resources, and sales momentum required to become one of the top PC and notebook companies. Whether the company can pull it off remains to be seen.

A strong indication of HP's ability to grow in a difficult market came out today. A study by International Data Corporation (IDC) shows that HP was the fastest-growing company in the first quarter, with sales up by 69 percent over the same quarter from a year ago.

Moreover, the company is poised to become one of the top PC vendors in the United States, a significant milestone for the company. It is now the No. 6 vendor but is expected to soon replace Packard Bell NEC, according to IDC.

In a separate development, Hitachi and NEC of Japan are expected to license HP's Unix operating system (OS) for 64-bit server computers, which would be a major endorsement of an HP OS, according to a report in the Nihon Keizai Shimbun, Japan's largest business daily. To date, the Japanese firms have been using their own versions of Unix.

The two companies decided to adopt the HP's Unix OS because it will accommodate Intel's next-generation 64-bit Merced processor, according to the report.

HP has largely dodged the inventory glut that hit Compaq Computer and IBM in the first quarter. The company has approximately 20 days of desktop inventory in the channel, said Jacques Clay, vice president and general manger of HP's commercial division.

That's more inventory than the company wants, but is far less than what the other two companies have had to absorb.

Meanwhile, HP has finally put its notebook strategy in high gear, a move it hope will help make it a leading vendor of not only desktops and servers but notebook PCs also.

Still, becoming a top three desktop provider and a top notebook vendor is going to require HP to knock off other sales leaders in a market that is already consolidating around the major brands.

Further, HP is going to have to do that in an era when PC technology is increasingly being treated as a commodity. Most of the competitive advantage boils down to price. To compete, HP will deliver greater "value" to customer, said Clay, but what that means remains relatively vague at this point.

"When it gets to commodity status, it is important for manufacturers to create real value," he added. "The relationship between the PC vendors and their customers have to be reengineered. Our customers expect a much tighter relationship between the PC vendors and the end-users."

Although he didn't reveal full details, Clay pointed out two areas where HP is moving forward on its business model. The first lies in revamping its manufacturing and distribution strategy. By the summer, HP will begin to roll out its channel assembly program. Under this program, resellers will assemble computers per customer order. Not only will this reduce inventories, but also customers will be able to purchase more customized machines.

Taking a jab at Compaq, which announced such a program last year but failed to completely implement it, Clay said, "There was a lot of noise, but not a lot of action" on streamlined distribution last year.

Second, HP will launch initiatives that will give it greater contact with its customer base. The objective is to create more of a "high-touch" relationship with customers, he said. In the past, computer resellers were the main contact with customers. In the future, Web-based links will be set up between HP and its customers so that HP can gauge demand better.

The program will aim at one of the strengths now enjoyed by Dell, he noted. HP will not start rolling out these program until later in the summer.

Importantly, HP will not abandon its reseller base, he said. HP may increase its direct contact with customers, but it will still use distributors and resellers for sales and delivery.

Dell, in fact, is doing the same, he said. "They are relying for many of their sales, some 25 to 30 percent, on the presence of local resellers," Clay asserted.