Hewlett-Packard’s (NYSE:HPQ) PC sales weren’t catastrophically bad during the first three months of 2011, as many had feared. Business client sales grew 13%, and the company did meet its overall sales expectations for the quarter, raking in $31.6 billion in sales.
Still, it lowered expectations for the second quarter, and internal memos leaked to Bloomberg on Monday indicated that layoffs were in H-P’s future and hiring plans were “unaffordable given the pressures on our business.”
If business sales are up, however, that means the big concern is the consumer side of H-P.
CEO Leo Apotheker didn’t give out concrete numbers, but his comments during the earnings call demonstrate just how precipitous the decline in consumer PC sales was over the first quarter. “Even though our expectations had been cautious, the steepness of our Q2 decline is greater than what we anticipated,” he said
The PC business is changing at a dramatic speed, with new devices like Apple’s (NASDAQ:AAPL) iPad as well as smartphones made by Apple, Research In Motion (NASDAQ:RIMM), Google (NASDAQ:GOOG), and others fulfilling basic consumer needs, like email and Internet access that were met in the past by PCs.
Even as consumer PC sales diminish, companies other than Hewlett-Packard are redefining what those consumers are looking for in a PC. Google announced the new ultra-cheap Chromebook laptop on Thursday. When people, especially students, can buy a functional PC built for web access for as little as $20 a month, how can H-P hope to keep its lead as the world’s biggest PC manufacturer?
The question: Should H-P cut its losses and abandon the consumer PC market to focus solely on building its roster of business clients and its service business?
Absolutely not. While H-P’s future in the consumer PC market is uncertain right now, its PC business still grew by 6.5% in 2010. If anything needs to change, it’s that H-P needs to create its own version of the Chromebook, a device that it can release in the same timeframe as the Palm-made TouchPad tablet it’s working on.
However, while it’s an admirable device on paper, the TouchPad simply won’t be able to compete with the iPad when it is released this year, and H-P needs to instead redouble its focus on new consumer PC products.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
