Thursday, May 15, 2008 Ng: PC sales continue to grow By Wilson Ng Wired Desktop
UNLESS you live in a cave, you’d have heard about the US economic recession. Fortunately, worldwide PC shipments still managed to grow 14.6 percent to 69.5 million units in the first quarter of this year.
Other than the slowdown, there have been talks that people use less computers because they prefer cell phones, especially smart phones. That is like saying that camera sales will drop because cell phones have cameras, too. They say the world’s largest camera manufacturer, ironically, is now Nokia.
But so far, while people use their cell phones to take pictures and to do some computing, sales of digital cameras and computers are still healthy. Most likely, people still find a lot of use for a full computer. Working on a spreadsheet or editing and browsing at pictures are still much better done on a proper monitor.
HP continues to hold the biggest market share with 18.6 percent. Dell is second with 14.8 percent market share while Acer is now at number three at 6.9 percent. Lenovo comes fourth with 6.6 percent market share. Most likely, Acer got the third spot by purchasing Gateway, which added to its numbers.
Maybe it is not enough to just sell computers, which is constantly subjected to price wars. If you recall a few years earlier, IBM dropped the personal computer business by selling it to Lenovo but has managed to grow very well in the last few years by focusing on integration, software and services.
HP managed to integrate Compaq well, and retained its number one position. But it seems that HP agrees that growth is not only about selling more computers, but also involves integration, software and services.
HP has been buying a good amount of software companies to add to its offerings, but now it is making a big bet—it recently bought EDS for $13.9 billion. This signals that it is going to compete head-on now with IBM on the services offerings.
If you recall, HP under Carly Fiorina, originally wanted to go into integration by proposing to buy Price Waterhouse Coopers (PWC) Consulting back in 2000 for $17 billion. But HP did not pursue the plan, and there came the dot com crash. IBM went on to buy PriceWaterhouse in 2002 for only $3.5 billion while HP went on to buy Compaq.
What is the prices of buying integrated service companies like PWC or EDS?
At the heyday of the dot com era, the price HP offered to Price Wa-terhouse was two times the latter’s annual revenues. Subsequently, IBM bought PWC at around 70 percent of its annual revenues.
HP bought EDS, which had a revenue of $22 billion, for about $13.9 billion, which suggested approximately the same ratio.
This means that for a mature service outfit, this might be the valuation that was currently acceptable. There are, of course, other considerations, like how fast the company is growing and how the economy is faring, etc. But at least, that answers some issues I was discussing with a tech guy who asked how much a software/service company should be valued?
We also heard that Sun Microsystems is not really earning that much from its server offerings, but recently open sourced many of its applications, including buying MySQL for $1 billion to earn from services. We also heard that EMC, the storage company, is actually betting on its growth in VMWare, a virtual software that they also co-own.
For most computer server companies, it seems that an integration of servers, software and services is the way to go.
