HP's PC sales lead industry, but 5.7% operating margins are dwarfed by Apple

Posted:
in Current Mac Hardware edited January 2014
HP's announcement that it will spin off its PC business stems from the razor-thin operating margins of just 5.7 percent the company has collected from its massive -- but not highly profitable -- computer sales.



In fact, HP's PC business is currently the lowest operating margin business segment in the entire company, analyst Brian White noted on Thursday. HP's low margins gave it the ability to have extremely low prices, which made it consistently the top selling PC maker in both the U.S. and the world.



But HP's margins on PC sales made it an unsustainable business for the company. It revealed on Thursday that it will spin off that operation, and scrap its webOS mobile platform as well, as it looks to focus on more profitable software and services.



HP's margins pale in comparison to market leader Apple, which has an overall operating margin of 30.43 percent, when all of its businesses, including the highly profitable iPhone, are included. Apple's profit margins are also very high, at 23.53 percent.



For comparison, company-wide, HP has a profit margin of just 7.21 percent, dragged down by its low-earning PC business. The company's operating margin is 10.46 percent, or less than half of Apple's.



One recent analysis compiled in June estimated that Apple could make more profit from selling just one Mac than HP does 7 PCs.







With an estimated 28 percent gross margin and average selling price of $1,323.40 per Mac, Apple is presumed to earn a profit of $370.55 for every Mac sold. HP, meanwhile, has an average selling price of $650 and a presumed profit margin of 8 percent, which nets the company about $52 on the sale of each PC.



In the first quarter of 2011, HP sold an estimated 15.1 million PCs to consumers, according to IDC, placing it well ahead of rivals Dell and Acer. Apple's sales of 3.76 million Macs weren't enough to crack the top five worldwide PC vendors. But with so few dollars earned on so many PCs sold, HP's earnings have not been competitive, while Apple's pricing discipline has helped it to become one of the most valuable companies in the world by market capitalization.



White believes that HP's decision to spin off its PC business is smart, and will help the company in the long run. But in the immediate future, he expects that HP will continue to struggle. He has maintained a "neutral" rating for the company's stock.



"Despite weakness in the stock on this announcement," he said, "we still advise investors to stay on the sidelines as we believe more bad things could be lurking around the corner."

Comments

  • Reply 1 of 20
    aaarrrggghaaarrrgggh Posts: 1,609member
    Quote:

    and scrap its webOS mobile platform



    Who cares about the PC division... what is up with this news!?
  • Reply 2 of 20
    cvaldes1831cvaldes1831 Posts: 1,832member
    What does the stock symbol for Appell Petroleum have to do with a discussion of high-tech companies?
  • Reply 3 of 20
    chabigchabig Posts: 641member
    Quote:
    Originally Posted by cvaldes1831 View Post


    What does the stock symbol for Appell Petroleum have to do with a discussion of high-tech companies?



    Touché
  • Reply 4 of 20
    Apple makes both the hardware and the OS. If you combine Windows and any PC, you get similar margins to Apple's
  • Reply 5 of 20
    garamondgaramond Posts: 109member
    Quote:
    Originally Posted by cvaldes1831 View Post


    What does the stock symbol for Appell Petroleum have to do with a discussion of high-tech companies?



    lol
  • Reply 6 of 20
    lkrupplkrupp Posts: 10,557member
    Somebody tell me again why market share is the golden ring of tech. All we ever hear from the Windows and Android crowd is how market share trumps profit and quality. Apple's relatively smalll market share means it's losing, according the trolls? HP leads the PC market yet doesn't make enough money to make it worthwhile any more? Are these people stupid or what? I guess so.
  • Reply 7 of 20
    jexusjexus Posts: 373member
    Quote:
    Originally Posted by lkrupp View Post


    Somebody tell me again why market share is the golden ring of tech.



    Because when you have opposition on your platform, your goal will be to expand as much as possible. If Microsoft Made PC's it wouldn't have this problem.



    Apple controls every aspect of it's products, therefore has no reason to worry about Market share because it can work around any problems.
  • Reply 8 of 20
    Please Change the article. Hp is not spinning off its pc hardware. Its looking into it BUt that would still be atleast 2 years from now.



    They are stopping any webos development and devices. So they are exiting the webos tablet and phone market.
  • Reply 9 of 20
    Quote:
    Originally Posted by lkrupp View Post


    Somebody tell me again why market share is the golden ring of tech..



    You'll be waiting a long time for a sensible answer to that one!
  • Reply 10 of 20
    Quote:
    Originally Posted by Jexus View Post


    Because when you have opposition on your platform, your goal will be to expand as much as possible. If Microsoft Made PC's it wouldn't have this problem.



    Apple controls every aspect of it's products, therefore has no reason to worry about Market share because it can work around any problems.



    Nonsense.
  • Reply 11 of 20
    Quote:
    Originally Posted by anantksundaram View Post


    You'll be waiting a long time for a sensible answer to that one!



    Because jackass analysts and Wall Street like to spin it that way likely for reasons of manipulation. They're either fools or liars and I suspect they're both. There is no guarantee that having the highest market share will make a company or platform a successful one if they're throwing away profits for the sake of market share. Examples: Nokia, Dell, Acer, HP.



    I don't understand how people that are supposed to be brilliant in the way of finance can push such crooked BS. Those g-damn hedge fund managers that continue to push some swill about Apple feeling pressure from Android market share are a bunch of g-damn liars or freaking idiots. As Android market share grows, it seems to be losing profit share so what kind of broken financial model is that for Apple to be scared of. Apple is operating on sound financial principles and that's why it is making money while other companies are losing money. There are no smoke and mirrors involved and Wall Street must hate that. Wall Street seems to be in its glory when it obfuscates the truth.



    Anyone that actually believes that Android is the most successful platform due to having the most market share really are fools. Selling products is a business and in business, usually the company that makes the most money would be considered the most successful. But when it also has the most loyal customers, then that company will be almost unbeatable.
  • Reply 12 of 20
    mdriftmeyermdriftmeyer Posts: 7,503member
    Quote:
    Originally Posted by aaarrrgggh View Post


    Who cares about the PC division... what is up with this news!?



    I'd say the the 20 million plus PC's sold each year by HP is far more of a boom to the gut than webOS.
  • Reply 13 of 20
    tallest skiltallest skil Posts: 43,388member
    Quote:
    Originally Posted by majortom1981 View Post


    Hp is not spinning off its pc hardware.



    Yet.



    Quote:

    Its looking into it BUt that would still be atleast 2 years from now.



    What's with the arbitrary date? There's nowhere that HP says, "2 years".



    What, does your HP desktop's warranty run out in two years and you think if you say, "2 years until spin-off" you'll get to keep that warranty?



    You'd get to keep it if they had spun off today. Relax.
  • Reply 14 of 20
    jdwjdw Posts: 1,280member
    I guess the slim margins are the primary reason why HP did not consider a bid for the sale of 15 million tablets:

    http://www.appleinsider.com/articles...blet_deal.html



    Which leads one to wonder about HP's management.



    I agree with getting HP out the PC business. They should merge with Agilent (which is a stupid name) and put their brand back on the world's greatest engineering measurement tools.
  • Reply 15 of 20
    astroastro Posts: 22member
    what is with this new trend of placing oversized company logos in the middle of a review?



    get some creativity people.



    i didn't need a giant hp logo in the middle of the page to tell me i was reading an article about hp. the headline already told me so.
  • Reply 16 of 20
    sheffsheff Posts: 1,407member
    Damn if hp gets out of pc business we are left with dell and asus. Really shitty choices and much worse than hp IMO.
  • Reply 17 of 20
    prwprw Posts: 31member
    Market share is important to many analysts because of the theory that economies of scale are important in maximizing profits in a manufacturing company. The real question is whether the theory is applicable to markets that are based on fast evolving technology.



    My guess is not, at least for the Windows-based PCs, since the manufacturers DO NOT CONTROL the introduction of new technology. The manufacturers just repackage Intel (or AMD) CPUs and MS operating systems. Strictly a commodity business. Dell was successful at minimizing costs, but that drove all manufacturers to the same techniques, so no one has a significant competitive advantage.



    PC makers are "viewed" or "analyzed" as high-tech companies, but they really aren't, because they themselves cannot innovate: Intel and Microsoft do that for them. That's why the only PC maker I own is Apple. I just don't own enough !
  • Reply 18 of 20
    tallest skiltallest skil Posts: 43,388member
    Quote:
    Originally Posted by sheff View Post


    Damn if hp gets out of pc business we are left with dell and asus. Really shitty choices and much worse than hp IMO.



    Sony? Asus? Apple?



    Plenty of other companies.
  • Reply 19 of 20
    gatorguygatorguy Posts: 23,952member
    Quote:
    Originally Posted by Tallest Skil View Post


    Sony? Asus? Apple?



    Plenty of other companies.



    .... and Samsung. The latest has them taking HP's laptop business off it's hands. Supposedly in talks with Apple's supplier Pegatron about doing some builds for them.
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