Dell and IBM threaten HP's dominance

HP's financial performance is not strong enough to maintain its position as the world's largest IT hardware manufacturer in the face of mounting threats from competitors, analysts have warned.

Gartner has warned that the vendor's incoming chief executive to replace Carly Fiorina, who was ousted earlier this month, will be forced to kick off a campaign of "significant cost-cutting efforts" in order to fight off the threat from rivals including Dell and IBM.

HP is currently the largest manufacturer of IT hardware in the world, with $13.5bn worth of shipments in first quarter of 2005, noted Martin Reynolds, vice president in Gartner's Dataquest organisation.

But the analyst predicted that HP's current performance is not strong enough to keep its leadership position. "Dell came a very close second during the same period, and is growing faster and showing more profit," said Reynolds.

"Faced with intense competition from Dell, and the emerging threat of China's Lenovo Group, HP will have to undertake significant cost-cutting efforts, probably from non-revenue bearing areas of its business.

"These cuts will certainly be accompanied by challenges to the business units to increase revenue."

Gartner does not expect HP to sell off any of its business lines, nor to make major changes in product portfolios, market strategies or local execution in the short term.

The analyst firm went on to advise HP customers not to change short-term plans for purchases of HP products, adding that companies can exploit HP's need to maintain short-term revenue and counter competitive threats by negotiating more favourable pricing deals.

Reynolds's comments come after HP's recent announcement of solid earnings results for the first quarter of 2005 which showed quarterly revenue of $21.5bn, a 10 per cent year-over-year increase and a record for the company.

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