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Three surprise companies weigh up buying HP

The shocking news that HP, the world’s largest PC company, cannot operate in the PC market has sent reverberations throughout markets across the world. With Leo ‘the Chemist’ Apotheker at the helm, billions have been stripped from the value of HP’s brand – with share prices dropping around 20% on the news that he’d decided to run from hardware and re-position as a software and services company. That begs a huge question: Who will buy HP’s brand? KitGuru weighs up the options and offers 3 contenders that you might not have considered.

First, let’s state the bleeding obvious. Whichever company purchases the HP PC business, will become the world number one. In real world terms, this is the equivalent of McDonald’s coming up for sale in the hamburger market, because Ronald thinks there’s more money in supplying serviettes, straws and uniforms.

So who are these surprise runners and riders?

Backed by the entire economy of South Korea, Samsung now has an incredibly powerful brand, but in the PC space it is a midget. If Samsung bought HP, then it would be able to execute a HP-buys-Compaq or Lenovo-buys-IBM type strategy, where the real aim is to take over HP’s sales teams, major customers and channels to market – rather than any specific interest in the (by then, weakened) HP brand.

During a recent session with one of Foxconn‘s directors, KitGuru learned that ‘big things’ were being planned for Q4 this year. At the time, we did not tie that in with anything else. But taken in light of HP’s decision to run from the PC business – the option for Foxconn to buy the business looks interesting. The market is now, very definitely, a competition between Apple and PCs. Given that Foxconn makes almost all of the Apple products, it would be buying a massive insurance policy with a strong PC connection. Plus, it has the component building business ready to go.

Almost every market goes through certain stages. One of them is the movement toward oligopoly, where (for example) a handful of companies control more than 80% of a business globally. Another is the collapse of the supply chain, where the middle men (and their fat boy margins) margins) are cut out of the business model, to reveal much leaner commercials. That also helps build strong barriers to entry. With annual revenues of around $40 Billion, Quanta is a Taiwanese system builder run by Barry Lam (6th richest bloke in Taiwan and worth over $3 Billion). Although many people have not heard of Quanta, it actually builds around one third of all the notebooks etc in the world. If you have ever bought a system from Apple, Compaq, Dell, Gateway, Alienware, Cisco, Fujitsu, Lenovo, LG, Sony, Sun or Toshiba – then you have probably bought a product made by Quanta.

Oh yes. And that’s true times two if you have purchased an HP PC. How strong is this manufacturing giant?  Well Acer started to feel the heat around three years ago – so it moved much of its production from Quanta to Compal.

HP has always been famous for being a ‘fat’ company, with loads of staff and overheads that companies like Acer did not have. Business people measure this kind of fat with a value called OPEC. It has nothing to do with oil prices, but a lot to do with operating costs and overheads. Going back a few years, Acer was able to pitch deals against HP where the Acer price was 6 or 7% lower – but the Taiwanese would actually make 1-2% more profit, simply because its operating costs were so much lower.

If Quanta stepped in to take the HP brand, then it would automatically pick up a ton of gross profit in every deal.

Looking at the web sites for each of these companies, you can see that they are not set up to deal with PC customers the way that HP is (was). Buying HP would fix that problem for Foxconn, Quanta etc.

Now that HP has fallen down and broken its crown, who will be the biggest left around?

KitGuru says: So there you have it. Alongside Dell, Acer and Lenovo, there are loads of discussions taking place right now at Quanta, Samsung and Foxconn. Whichever way this plays out, there will be a new Global Number One by the end of the year. Any bets on who it will be?

Comment below or in the KitGuru forums.

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