Is HP's Top Spot in the PC Market at Stake?

Since 2007, Hewlett-Packard (NYS: HPQ) has retained its top position in terms of PC shipments. However, in 2011, while rival Lenovo's worldwide PC shipments jumped by almost 23%, according to research firm Gartner, HP's shipments for the year fell by 16% -- and by an alarming 26.4% in the fourth quarter itself.

Now, after ousting Dell from its No. 2 spot, Lenovo has come close to dethroning HP from its leading position as well. A closer look would help us understand the scenario.

What's turning the tables?
A number of factors were responsible for HP's slide. Its PCs did not do well in the otherwise profitable holiday season due to aggressive pricing strategies adopted by competitors. Moreover, young consumers developed a fondness for tablets, which drew them away from traditional desktops and notebooks. Although HP did sell WebOS-based tablets in 2011, its former CEO Leo Apotheker decided to do away with this product entirely, putting the company on the wrong footing.

However, the worst blow was dealt when Apotheker made the decision to sell off HP's personal-computer business. This led to a dent in confidence among its investors, suppliers, and distributors, and paved the way for Lenovo to take advantage of HP's vulnerable state.

Lenovo seems to have played its cards right through aggressive pricing in the professional and consumer space. However, the company attributes its success to building the Lenovo brand popularity among young consumers. It launched marketing campaigns with the tagline "For those who do," targeting young, aspiring consumers. The company's recent introduction of the stylish ultrabook-cum-tablet, dubbed the IdeaPad Yoga at CES, is proof of its continued effort to attract the young and tech-savvy crowd.

Apart from this, Lenovo acquired German computer- and consumer electronics-maker Medion in June 2011, its biggest acquisition since IBM's PC unit in 2004. It also formed a joint venture with NEC in July 2011, which made it the biggest PC supplier in Japan. In addition, the company strengthened its distribution channels and expanded its product line, catering to different buyers through multiple price points.

Is HP doing enough to defend itself?
Well, from the looks of it, HP is not doing much to enhance its personal systems division. All I can see is that it's pinning its hopes on products such as the new Envy Spectre Ultrabook and a range of all-in-one 27-inch desktops without touchscreens.

Both products have been priced beyond $1,000. This makes me skeptical about the sales that they might generate among price-conscious consumers, who might prefer less-expensive tablets such as the iPad.

The Foolish bottom Line
As HP has lost a significant share of its PC market to its rivals, I am nervous about the company unless it comes up with some game-changing products.

So, what do you Fools think about HP's situation? Leave your comments in the box below. Also, don't forget to stay up to speed with the latest on HP by adding it to your watchlist. It's free and lets you stay on top of the latest news and analysis about your favorite companies.

At the time thisarticle was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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