Cautious optimism
Merrill Lynch analyst Steven Milunovich noted that HP sees its PC business as strategic and a potential source of profits, but he said he doesn't expect significant profits until next year at the earliest. Milunovich said he came away from a recent meeting with company management slightly more optimistic than he had been about the company's prospects.
The company may have an easier time of winning consumer business by tying its products together than it will have standing out in the enterprise market, Milunovich said. There, he said, HP faces the challenge of trying to position itself as more of an innovator than Dell, but lower cost than IBM.
"IBM and Dell have staked out the extremes," Milunovich said. "The fact that HP's differentiation depends as much on comparing to IBM and Dell as to an absolute proposition is telling."
That said, Milunovich noted that a company doesn't have to be No. 1 to make money. "If you can't be Hertz, be Avis," he wrote. "There's money to be made in being a solid No. 2."
On the printing side of the business, HP continues to generate strong sales and profit growth. The company is expected to outline its strategy to maintain double digit increases in revenue by expanding into new areas, such as high-speed copiers.
Pressures on the profitable ink and toner business remain, but analysts say the company is not seeing any large-scale erosion. Cross noted that the amount of retail shelf space being given to remanufactured ink vendors has been growing at several retailers, with mall shops also opening to sell refilled cartridges.
"There is a huge amount of money to be made doing this," Cross said.
At the same time, Milunovich said that the percentage of cartridges that are being refilled has remained roughly steady for the past 18 months. He cites statistics from Lyra Research that show remanufactured toner cartridges make up about a quarter of toner revenue, while refilled inkjet cartridges account for about 17 percent of ink sales. "The printer supplies business appears safe from disruption for now," he said.
