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HP's PSG sale stirs ODM supply chain

Posted: 26 Aug 2011 ?? ?Print Version ?Bookmark and Share

Keywords:ODM supply chain? market share? PC market?

Hewlett-Packard Development Co. L.P. (HP) has taken the PC world by surprise with the planned sale of its Personal Systems Group (PSG). It has also withdrawn from the tablet and smartphone market with a renewed focus on other ventures such as service, Imaging and Printing Group (IPG) and Enterprise Server, Storage and Networking (ESSN).

According to the survey conducted by TrendForce Corp., PSG was the largest revenue generator for HP, with a contribution of $9.592 billion in 2Q11, accounting for 30.8 percent of total revenue. However, in terms of operating profit margin, PSG was in last place with 5.9 percent (all other businesses above 10 percent). TrendForce believes that while PSG is HP's largest revenue generator, its contribution to the company's bottom line is minimal. Other factors for HP's potential PSG sale decision stems from an unclear PC market outlook as well as compromised PC sales due to the rise of tablet popularity.

PC market share

With a market share of 18 percent in 2011, HP is forecast to rank first in the global PC market. If HP sells its PSG to Samsung, Samsung's market share would soar from four percent to 22 percent. It will not only complement Samsung's desktop sales and expand their market shares in DRAM, NAND, LCD and battery sectors, but also significantly affect component manufacturers in Taiwan. On the other hand, if Lenovo buys PSG, its market share would rise from 12 percent to 30 percent, surpassing Dell and Acer's combined market share. (Dell and Acer currently rank second and third in market share, respectively.) The purchase would also consolidate Lenovo's market shares in mature markets. If HP sells to Dell, Dell's market share would surge to 31 percent, surpassing the combined market share of Lenovo, Acer and Asus.

PC market share

The research from TrendForce revealed that Inventec, Quanta, Foxconn and Wistron, the major ODMs for HP's notebooks, account for 25C30 percent, 30 percent, 20C25 percent and 5 percent of HP's shipment in 2011, respectively. If HP sells its PSG, Inventec is expected to suffer the most severe setback because HP totals 60 percent of Inventec's notebook (NB) shipment, and their Japanese and American clients make up for the rest. In addition, HP has announced to terminate the production of its WebOS tablet TouchPad exclusively manufactured by Inventec. If HP divides and sells part of its PSG, the potential client order decline is expected to spoil ODMs' revenues. On the other hand, since Quanta possesses the greatest client diversity among ODMs, regardless of the final buyer for HP, Quanta will most likely continue to receive orders from this new client.

In Foxconn's case, HP and Dell account for almost 70 percent of its NB shipment this year. In 2012, however, the NB shipment ratio from HP is expected to increase while Dell may decrease. Consequently, if HP's orders also drop in 2012, it would drastically affect Foxconn. Foxconn's efforts to leverage its component supply chain strength in breaking into the NB market, increasing its competitiveness and raising its value�would be significantly undermined, TrendForce said.

Out of more than a dozen of its production divisions, Foxconn dedicates one of them exclusively to the HP product line. If Foxconn were to buy PSG, it has to take into account of both their other clients' reactions and whether or not Foxconn has sufficient capital, due to the recent low stock price. That being said, if Samsung buys PSG, it will inevitably jeopardize Foxconn. However, Compal and Pegatron, both not currently included in HP's supply chain, will mostly likely benefit from other companies' acquisition of PSG.

HP's PSG sale will not affect Taiwanese NB ODM's businesses as a whole because the cooperative system between brand vendors and ODMs has been established for years. Regardless of the final buyer, be it Samsung, Lenovo, Dell or other NB manufacturer, they will most likely outsource their production orders to ODMs in Taiwan. In the end, it may change the dynamics between NB ODMs in Taiwan and affect the global PC ODM industry.

From HP's perspective, TrendForce believes HP has disclosed its intention to sell PSG in order to generate a bidding competition among potential buyers and maximize company profit while ensuring the information security of the U.S.

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