By Connie Guglielmo
Aug. 19 (Bloomberg) -- Hewlett-Packard Co. is drawing inspiration from Milan designers to maintain its lead over Dell Inc. in the personal-computer market.
Instead of building workhorse machines in utilitarian cases, Hewlett-Packard strives to create sleeker, more stylish PCs by looking to the fabrics and shapes in Italy's furniture showrooms, said Stacy Wolff, director of notebook-computer design.
``The notebooks are a lot slimmer and a lot nicer than the big bulky boxes people lugged around three years ago,'' said William Fearnley Jr., an analyst with FTN Midwest Securities Corp. in Boston. ``Hewlett-Packard's designs have helped them.''
Demand for PCs, which account for about a third of Hewlett- Packard's $104.3 billion in annual sales, may help the Palo Alto, California-based company post an 8.1 percent gain in third- quarter revenue today, according to the average estimate of 21 analysts in a Bloomberg survey.
Chief Executive Officer Mark Hurd eliminated about 15,000 jobs, or 10 percent of the total, to save $1.9 billion a year. He combined data centers to save another $1 billion and aims to cut real-estate expenses one-third by 2010. Those reductions allowed Hewlett-Packard to match or beat Dell's PC prices while improving designs.
Putting form and function before component costs mirrors a strategy by Apple Inc. Chief Executive Officer Steve Jobs, whose aluminum-clad desktops and notebooks have propelled the company to its highest PC market share in at least a decade. In January, the company introduced the MacBook Air, which is less than 1 inch (2.5 centimeters) thick. Hewlett-Packard and Dell announced their own ultra-thin notebooks after that.
Gaining Share
Hewlett-Packard had 19 percent of worldwide PC shipments in the second quarter, compared with Dell's 16 percent, according to technology researcher IDC in Framingham, Massachusetts. Hewlett- Packard has increased its share every quarter since taking the lead from Dell in 2006. Apple had 3.6 percent, IDC said.
Hurd, 51, is counting on PC sales and international demand to overcome a slowdown in technology spending in the U.S. In May, Hewlett-Packard said sales might rise as much as 8 percent to $27.4 billion in the quarter that ended July 31, and profit to as much as 77 cents a share from 66 cents a year earlier. Hurd has met his forecasts in every period since taking over from Carly Fiorina in April 2005.
The company declined to comment on earnings ahead of the report, said spokeswoman Emma McCulloch.
Hewlett-Packard fell 99 cents to $44.60 yesterday in New York Stock Exchange composite trading. The shares have declined 12 percent this year, compared with a less than 1 percent gain at Round Rock, Texas-based Dell.
PC Sales
Third-quarter PC sales at Hewlett-Packard may jump 13 percent to $10 billion, according to Maynard Um, an analyst at UBS AG in New York. Revenue from laptops has risen more than 30 percent in each of the past six quarters, Um wrote in an Aug. 4 report.
Hewlett-Packard introduced 16 notebooks in June, describing them as ``frameless,'' ``elegant,'' and ``satin, reflective.'' The company investigated Italian tapestries and patterns, and then used a printing technology that stamps designs onto the computer's case rather than painting them on, creating a more durable finish, Wolff said.
The focus on design is a break from the past, when the cost of parts and materials would have dictated the product's look, he said.
`Fundamentally Shifted'
``The value that H-P sees in design is quite significant now,'' Wolff said in a telephone interview from the company's design center in Houston. ``We fundamentally shifted from utilitarian to fashion.''
Hewlett-Packard's design strategy dovetailed with a shift in demand to laptops from desktop computers, said Roger Kay, president of Endpoint Technologies Associates Inc., a market research firm in Wayland, Massachusetts. Notebooks accounted for 53 percent of Hewlett-Packard's PC sales in the second quarter, up from 40 percent two years earlier.
``As you shift from desktops to notebooks, the machine becomes more personal,'' Kay said. ``Design has an aesthetic element and a functional element as well.''
Dell also is redesigning its products after two decades of touting price over packaging. The company restyled its consumer machines in the past two years, and last week revamped business laptops. After battery life, Dell promoted the machines' ``brilliant new design'' and choice of five colors. Dell reports earnings Aug. 28.
Price War?
Dell spokesman Jess Blackburn declined to comment.
Dell's efforts to revive sales may lead to a price competition, with profit margins potentially narrowing amid a battle for market share, said Bill Shope, an analyst who began covering Hewlett-Packard at Credit Suisse Group this month.
Hewlett-Packard's gross margin, or the percentage of sales left after deducting the cost of production, was 24.4 percent in the last fiscal year, compared with 19.1 percent at Dell, according to data compiled by Bloomberg.
``It is just a matter of time before H-P and Dell begin to butt heads,'' New York-based Shope said in an Aug. 7 report. He rates Hewlett-Packard shares ``neutral.''
Hewlett-Packard's PC designers say they're thinking ahead, hiring more employees and continuing to experiment with new materials, such as brushed aluminum.
``There's a lot more investment that's going on,'' Wolff said. ``We've made both strides in improving our design quality and strides in not trying to follow others.''
To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net.
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