On August 21, 2014, Trish Reagan and Cory Johnson of Bloomberg discussed HP’s latest earnings report during Bloomberg TV’s “In the Loop” daily show. Johnson summed up cautious remarks expressed by Meg Whitman, HP’s CEO, during the webcast of the earnings conference call. Johnson quoted Whitman providing color to the 12%, year-over-year, increase in HP’s sales of PCs as attributable to a burst of buying from companies needing to migrate from Windows XP as the result of Microsoft’s decision to sunset support for this computing platform. Johnson quoted Whitman cautioning her audience the uptick was a unique event, and not to be taken, necessarily, as a signal of a sustainable trend. Johnson called the performance a “one time thing”.
But, perhaps, the uptick in PC sales promises to continue longer than even Whitman has led analysts and investors to expect. After all, during Microsoft’s most recent earnings conference call, Satya Nadella, CEO described the 2014 holiday shopping season as an occasion for shoppers to finally have an opportunity to acquire Windows PCs at price parity with Google Chromebooks.
Nadella based a prediction of lower average sales prices (ASPs) for PCs based, in part, on the lower licensing costs Windows OEMs will likely face as they preload the O/S to their hardware. In turn, these lower licensing costs, Nadella predicted, would be one of the benefits of a new version of the Windows operating system, which he reported to be in the process of being rewritten.
This new version of Windows, in this writer’s opinion, is a “one size fits all” effort for this desktop computing O/S. In other words, Microsoft should be able to distribute the cost of building one O/S, which will run on each of the form factors it targets, across the entire effort, and, thereby, lower costs to its OEM customers. A number of posts have been published, recently, to this blog discussing the likely impact of this new operating system, which Nadella described as capable of supporting the entire range of computing form factors Microsoft presently supports, from the same code.
If a new version of Windows is available for consumers for this year’s holiday season, the increase in unit sales while likely benefit Lenovo and Dell, as well as other so-called “Wintel” OEMs.
At the same time, it is also worth noting Microsoft’s intention to sunset support for Windows Server 2003. Data center sales deliver a bigger revenue contribution for HP, IBM (soon to be Lenovo), and Dell, than consumer PCs. So some segment of the enterprise computing market will likely start migrating out of Windows Server 2003 and up to a platform Microsoft continues to support.
Johnson also remarked cautiously on the decline in profits HP reported for this most recent quarter. In this writer’s opinion it should be easier for HP to return to earlier levels of profitability a quarter or two from now. The real challenge for HP was to return to growing sales. With this most recent quarter they have met the challenge, albeit just barely.
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