HP New China Push Set To Sputter

HP overhauls China ops

Perhaps struggling former global PC leader Hewlett-Packard (NYSE: HPQ) has finally straightened its house, or perhaps it senses that rival Lenovo (HKEx: 992) has become distracted with its recent push into smartphones. Whatever the reason, HP appears to be gearing up for a new push into China, with its announcement of a newly created China chairman position which is being filled with a tech industry veteran. Such a move implies an overhaul of HP’s China operations, and is certainly long overdue for a company whose share of China’s PC market has dropped sharply in the last few years. But the move also looks like too little too late, amid a global trend that has seen PC sales fall sharply due to the rising popularity of smaller devices like tablet PCs and smartphones.

I should start off by congratulating HP CEO Meg Whitman for finally making a definitive move in China, some 2 years after she was named as the US tech giant’s top executive. Whitman admittedly inherited a company that was on the cusp of a major downturn, as HP and rivals Dell (Nasdaq: DELL) and Lenovo largely failed to recognize how quickly their core PC products would be replaced by fast-rising smartphones and tablet PCs made by nimbler rivals like Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930).

Still, HP’s position in the China PC market hasn’t fared so well under Whitman’s 2 years of leadership. The company commanded about 8.5 percent of the market just before her arrival in 2011, which was already down from its earlier days when it controlled double-digit share. That share quickly tumbled to just over 5 percent by the end of 2011, though it bounced back a little to 6.6 percent by the end of last year, according to IDC.

In a bid to revive its fortunes in the world’s biggest PC market, HP has just named IT veteran Robert Mao to head its China operations, giving him the new title of chairman of HP China. (English article; Chinese article) I remember personally interviewing Mao many years ago when he was head of China operations for the now-defunct former telecoms equipment giant Nortel. Since then he has filled other jobs at networking equipment maker 3Com, which was acquired by HP in 2009, and most recently headed a broadband technology firm Ubee. Underscoring the importance of his position, Mao will report directly to Whitman.

I don’t mean any major disrespect, but this particular appointment doesn’t look all that exciting to me. I do like the fact that Whitman is finally realizing the importance of the China market and making a single person responsible for the market, reporting directly to her. But the choice of Mao looks less exciting, as he’s already 69 years old and unlikely to stay in the role too long. What’s more, his previous credentials are all from the telecoms sector, and the 2 major companies he previously worked for are both now defunct.

But the bigger picture is that China’s PC market could soon become irrelevant anyhow, mirroring a global trend as consumers flock to smaller, more portable devices. The global PC market has been contracting for the last 5 quarters, including an 11 percent slide in this year’s second quarter, according to Gartner. Lenovo has realized this trend and is trying desperately to move into smartphones and tablet PCs, using its home China market as the base to develop and popularize its newer product lines.

HP’s computers are already quickly becoming irrelevant in the China PC market, and I don’t think I know anyone who uses an HP tablet PC. With so many industry and individual factors working against it, this new China reorganization certainly looks like too little too late. Accordingly, I wouldn’t expect to see HP’s share of the traditional PC market in China rise too much anytime soon, and the company is unlikely to become a major player in the tablet PC market either as it faces stiff competition from low-cost domestic rivals.

Bottom line: HP’s China reorganization, including a new country chairman, is too little too late and unlikely to reverse the company’s slide in the market.

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