Think of Hewlett Packard (HP) and you usually think of personal computers and printers. Think again, please. Think of HP "� and think of high-tech LCD and plasma television sets, smart phones with personal digital assistant (PDA) functions, desktops geared to become the entertainment hub at home, digital cameras, satellite radios and even music players. HP's global CEO Carly Fiorina is all set to position HP as a digital media company rather than a PC giant. HP's new global strategy is visible in India too. Last fortnight, HP India launched six new digital cameras, with price tags ranging from a bargain basement entry price of Rs 8,000 "� slightly higher than Kodak's entry price of below Rs 7,000 but much cheaper than Canon or Sony's entry-level camera prices of over Rs 10,000 "� to a stiffer Rs 40,000, apart from photo printers (including a battery operated one that can be carted around while on a holiday and another with a built-in LCD screen which eliminates the need to have a PC) with a starting price of Rs 4,999.
By year end HP will also launch its Ipaq smart phones (which retail in the US for $599). Last week, it relaunched its Ipaq PDA range with three new models, taking on PDA maker Palm Inc in the market (which has a market share of over 70 per cent). To grab marketshare, it dropped the entry level price of its PDAs by nearly half, from Rs 30,000 to Rs 15,000.
HP will also start selling Apple's iPod some time next year as part of a global agreement to market the product.
It will also sell plasma and LCD TVs next year for over $ 2,000.
HP also has ambitions of re-defining the PC market. The PC will no longer be meant only for word processing or for accessing the internet: it will also be an entertainment hub for the family. Between June and September next year, the company plans on introducing a range of new PC models with remote controls, fast forward, personal video recorders (thanks to this, you'll be able to record TV programmes), lots of hard disc space and even detachable disc space. Owing to HP's new "Quick Play" software, you won't have to use the standard Windows boot up process of the PC "� instead, you'll be able to watch movies or play music at the touch of a button.
HP executives say that the new PCs will cost between Rs 65,000 and Rs 75,000. The company hopes to sell 1,000 of these PCs every month. Still, Samsung has already got first mover advantage here, having launched laptops that perform most of these functions.
Crows Ashwini Aggarwal, country marketing manager, consumer segment, at HP India: "The competition is worried about our entry as we are a serious player in the market. And we have the strength of our brand."
Why is HP leaping into the consumer electronics market? Actually, it's following in the foot steps of Dell and Gateway, both of which too launched TV sets, digital cameras and so on. Gateway has already become the top plasma display manufacturer in the US because it offers the cheapest flat screen TVs.
Explains Ravi Swaminathan, HP India's vice president, personal systems: "The driver in the market is the move towards convergence. PCs, telephones, entertainment devices like the TV and digital photography are all converging. So there is no clear divide between the IT business and the consumer electronics business. That's is the space in which HP will now operate."
Continuing, Swaminathan cites examples "� digital cameras need PCs to store and edit pictures, PCs are becoming entertainment devices because they're being used to see movies or listen to music, music players like iPod need to download music from sites, which again requires PC connectivity, and smart phones are small PCs on the move.
Swaminathan thinks that it might take HP at least three years before it establishes itself as a force to reckon with in the consumer electronics market.
It already has over 200 HP premium retail shops, 1,000 micro retail outlets and over 2,000 channel partners. He says that these outlets now stock its PCs and printers and can be used to sell other consumer products too.
Some of these moves make eminent sense. The digital camera market, for example, is growing dramatically. Some 2 lakh digital cameras were sold this year and over 3.25 lakh are expected to be sold in 2005. Indeed, in the next two years, more digital cameras will be sold than analog cameras.
Says Ravi Aggarwal, vice president of the IPG group at HP India: "The market is expected to double every year. And it will grow further as duties are expected to come down even further in 2005. We will, of course, have to grow the market.
" HP is setting up over 50 HP Digital Centres where wannabe camera buyers can test them out, make prints of their pictures and get a first hand feel of the product.
HP's strategy is also closely interwined with its existing printers and PC businesses. Anyone in the digital imaging area (digital photography, editing and printing) must straddle at least two of these areas to succeed. That is why HP entered the camera business.
Says Vivek Prakash, vice president at Samsung India, a major HP competitor: "HP's main business comes from printers (it's number one here) and consumables and it has a strong PC base. This can be bundled with digital cameras. Also, more digital camera sales means that more printers and consumables are sold. So it's a win win situation.
" Look at it from another angle "� only 18 per cent of the life time value of a printer (usually five years) is extracted from its sale price. The rest comes from continuous sales of consumables like printing paper and ink cartridges. That is where HP will make the big bucks.
Bundling is the name of the game here. HP is offering a digital camera and a photo printer for Rs 14,999, more than 25 per cent less than what it would have cost you had you bought both separately.
It also hopes that about half its cameras will be sold on a bundled basis. Eventually, HP hopes that it will be able to bundle PCs with digital cameras. An executive at a competing company says wryly: "Imagine them giving a camera free with their PCs. They can instantly become the number one or two digital camera player."
Still, HP won't have a cakewalk. Last week, Sony India slashed its digital camera prices by an average of 10 per cent to 30 per cent. Says Ranvijay Singh, product head, digital imaging, at Sony India: "With the price correction we expect to increase out market share from 15 per cent to 30 per cent by the end of this year."
Four months ago, Canon leaped into the photo printer market and is challenging HP's domination of the home printer market. It expects to raise its 22 per cent home printer market share to 30 per cent by the end of this year.
Says Canon India director Alok Bharadwaj: "They are looking at this business as an IT peripheral business and at making money from consumables. Our approach is different."
HP may also find it tough to crack the lower end of the digital camera market. Kodak dominates the below Rs 10,000 camera segment (this price range accounts for 65 per cent of its sales).
Says Manisha Sood, country manager, digital and applied imaging, Kodak India: "Our digital camera brand is well established. We have 1,500 retail outlets and we are in the business of pictures, unlike our competitors. Plus we have the large infrastructure of Kodak Express Outlets. I think HP faces an uphill task."
As HP India is no doubt aware, India's PDA and smart phone market is tiny at the moment "� about 700 of them are sold every month on the official market. Ipaqs, for instance, did not make a dent earlier on the Indian market because of high prices. That could change.
Says Swaminathan: "Duties have now fallen by half from 30 per cent to 15 per cent, making them cheaper. There is a large market for smart phones as we are adding a million new mobile subscribers every month." HP hopes that at least 10 per cent of the new mobile service subscribers will opt for smart phones in the next 18 to 24 months. And Swaminathan reckons that with duties falling next year (as a result of India's WTO commitments), HP may be able to offer smart phones with PDA functions for Rs 15,000.
Even so, Samsung had experimented with selling CDMA PDA phones with Reliance and says that it was unable to sell even 500 of them. Says Samsung's Prakash: "It's too niche a market, and most people buy these products while travelling abroad." But if the market grows, Samsung can bring PDA phones from Korea in 48 hours.
Selling LCD and plasma TVs could be even tougher. Not more than a few thousand of them are sold in India and Sony and Samsung are already dominant in this segment.
HP executives reply that they are not looking at huge numbers, and that PC prices in the early 1990s were also around Rs 1 lakh but have fallen dramatically since then.
Says Swaminathan: "Yes, at prices of $ 2500-3,000 they will be niche products meant for only high net worth individuals. But over a three year period, prices will have to come down and HP will be there as it is a crucial element of a connected convergence home."
Yet some questions beg answers. Is HP ahead of its time and entering markets that are still to be developed? Or by leaping in early, will it establish itself and eventually become a leader in these segments?
Or does HP have USPs that its competitors cannot match? A senior consumer electronics giant executive believes that HP has hit the disaster trail.
"It's a recipe for disaster. HP's strength was its research and development. But by selling products like Ipods where it does not control the technology, it is losing its core strength."
Samsung's Prakash is more charitable: "Look at Dell. It tried to get into consumer electronics and sell TVs but has made no impact in the market. Remember, consumer electronics companies are also becoming IT product companies. But you cannot write them off."
