Is There Any Growth Left In PCs?
Alan: Yeah, but here's the thing. If HP thinks that PCs themselves are unsustainable, it means that the profits that can be made on hardware are pretty small. If HP was using Asus motherboards, don't you think that the sales of HP motherboards helped Asus subsidize development of other high-risk, enthusiast-grade products?
Chris: Ah, but did it think that PCs were unsustainable, or that PCs are simply no longer a growth market with large enough margins to warrant fighting over? I think that's an important distinction, because PCs are still sustainable business.
Interesting question about HP/Asus. Don't believe they go hand-in-hand, though. Foxconn does tremendous tier-one business. That doesn't mean it has seen much success turning its competency into a strong enthusiast solution.
Alan: Well making tier-one business doesn't make you a good enthusiast platform. But the other way around is true. If you can make a system that handles crazy overclocking, striped SATA 6Gb/s SSDs, and the thermal management to stay stable even though you've got a ton of dual-slot GPUs, it's a walk in the park to do a basic platform. Remember DFI? One of the best enthusiast product lines for a long time. No surprise that its business stuff was pretty good. Heck, the reason Nvidia and AMD walked all over 3DLabs, Evans and Sutherland, and SGI was that the requirements for an awesome enthusiast GPU ended up exceeding the requirements for an awesome professional GPU.
Chris: Sure, but how many companies start by making the crazy enthusiast hardware and then wander into high-volume mainstream world? The original point was subsidizing high-end hardware with mainstream components. Clearly it'd be a blow to the ODMs if they lost HP's motherboard business. But that business won't disappear. It'll simply be satisfied by another company.
Alan: Getting back to my argument, HPQ is not IBM.
At the time that IBM sold its PC business to Lenovo, IBM was the third-largest computer manufacturer in the world. HP is not number three. It's number one. In theory, it should be at the top of its game. It has been able to identify the variables required to edge out Dell, Acer, Apple, and Lenovo and pull ahead. But the problem is that even though HP sells the most PCs and therefore has the best economies of scale, its profit margin isn't enough to sustain the business long-term.
HP's rationale for selling is clear. But if it can't do it, how is a buyer going to do something better than what HP is already doing?
Chris: Really, they're not. The desktop PC business isn't a growth opportunity.
Alan: So if that's true, is the PC enthusiast market a growth opportunity anymore?
Chris: I don’t really think it surprises anyone that revenues are growing slower than unit sales. That’s what happens when prices go down. As a subset of the PC market, the enthusiast sector is subject to the same influences. If power users know they can get “good enough” performance from a $1000 configuration, the number of folks willing to spend $2000 is naturally going to be far less. Unless we see the sort of innovation that compelled us to buy $1000 CPUs and $500 graphics cards almost a decade ago, then no, I don’t see how the enthusiast market can be grown far beyond where it is today.