4. 2013 Computer and Internet
Use for U.S. Households
83.8%
78.5%
63.6%
78.4% 73.4%
0%
20%
40%
60%
80%
100%
Total with
Computer
With
Desktop/Laptop
With Handheld
Computer
With Internet
Access
With High Speed
Internet
% Households
Source: Census
5. U.S. PC Sales
for Hewlett Packard
0%
5%
10%
15%
20%
25%
30%
35%
0
1000
2000
3000
4000
5000
6000
7000
HPSales%ofTotalMarket
SalesinUnits
HP/Compaq Sales HP Sales % Total MarketThousands
6. Initial Research
Apple Net Sales Revenue
Consumer Personal Savings
CPI: Personal Computers
Consumer Sentiment Index
Multiple Job Holders
Producer Price Index
Real Personal Consumption
Seasonality
Total US School Enrollment
US Internet Advertising Expenditure
8. Regression Model
HP Quantity =
-30604 – 0.261 PC Price
+ 0.4477 Total School
Enrollment + 434 Quarter_4
Explains 85.11% of Demand
9. Hewlett Packard Sales:
Real versus Predicted
0
1000
2000
3000
4000
5000
6000
7000
HP/CompaqSalesinUnits
HP Predicted Sales (in units) HP Real Sales (in units)
Thousands
12. Regression: 4th Quarter
HP Quantity = -30604 – 0.261 PC Price + 0.4477
Total School Enrollment + 434 Quarter_4
13. Hewlett Packard Sales:
Real versus Predicted
0
1000
2000
3000
4000
5000
6000
7000
HP/CompaqSalesinUnits
HP Predicted Sales (in units) HP Real Sales (in units)
Thousands
Dell (Build to Order)
September 11th
Windows 7
PC Price Drops
14. Key Findings
Computers are a necessary school supply
Holiday season is the biggest sales driver
Customization is the industry norm
Price will always be an important factor
15. HP PC Demand Prediction
3000
3500
4000
4500
5000
5500
DemandPrediction(inunits)
Thousands
18. Recommendations
Increase production in Q2 in
preparation for Q3 and Q4
Continue marketing efforts for
Pavilionx2, Envyx2 and Splitx2
Focus R & D efforts on launching a
product less than $300
Increase marketing efforts for HP
Academy
23. US Internet Advertising Expenditure
0
2000
4000
6000
8000
10000
12000
14000
USInternetAddollars
Ad Dollars SpentMillions
24. Apple Net Sales Growth
0
10000
20000
30000
40000
50000
60000
70000
NetSales(inmillions)
Apple Net Sales (in millions)
Source: Apple Quarterly Reports
31. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 1
Hewlett-Packard Demand Driver Analysis:
Forecast and Course of Action
Blair Belliveau
McLean Gordon
Callen Larus
Yi-Lin Su
Anand Swamysetti
Team 20
Economic Analysis
Section 2
32. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 2
Personal Computer Industry Trends:
Since 1997, the personal computer industry has experienced defined pivotal moments.
Beginning in 2000, consumer sentiment shifted as the US market became saturated. Growth
came to a halt and the PC industry had to begin to adapt. As a result, the notebook laptop gained
footing and growth started anew. Dell won the consumer’s desires with Build-to-Order leading
to the industry rebounding (Carlson, 2006). Now the process has halted and innovation has
again become a necessity. Apple has dominated the playing field with its answer to the
consumer’s whims. Apple’s iPad has challenged the industry to focus on highly efficient, mobile
devices (Bajarin T. , Can the PC Industry Resurrect itself?, 2013).
Surveys show that people utilize tablets for 80% of their computational tasks leaving PCs
with the remaining 20% (Bajarin T. , Can the PC Industry Resurrect itself?, 2013). That 20% is
completed with the most baseline models leaving the most expensive PCs on the shelves to
collect dust. To further acknowledge the trend, the past ten years were dominated by the PCs in
the $799-$999 range with “high-end processors, extended graphics capabilities, and more on-
board memory and hard drive space” superior to cheaper models; however, it is those cheaper
models that have become the most preferred (Bajarin T. , Can the PC Industry Resurrect itself?,
2013). The last decade’s mid-priced PC has become marginalized as PCs simply need to meet
simple needs; furthermore, PCs have become like the car industry, nearly every household has
one and tries to make it last (Bajarin B. , 2013). Consumers feel no need to upgrade their PCs
which denotes the decreased value in the PC market. Demand still exists for upscale PCs in the
$1099-$1499 range but only in IT, business, and SMB markets which pale in comparison to the
consumer sector (Bajarin T. , Can the PC Industry Resurrect itself?, 2013).
The dawn of ultramobiles and hybrids illuminate the PC industry’s future. Multirole PCs
are the potential for the industry to regain traction and value in the minds of the consumer sector.
Goals should be set upon a hybrid PC of eight inches and smaller in dimension that meets the
demand of the tablet and has the potential for a traditional computer with the necessary
accessories (Bajarin T. , Windows Blue and the Rise of Ultramobiles, 2013). As for HP, Inc., the
company needs to continue developing hybrid PCs with touch-screen and high computational
capabilities. Price
has become the
leading combatant
contributing to the
PC industry’s
appeal. As evident
in figure 1, the
substantial
percentage of
households with
handheld computers
is a market that
needs to be tapped
(United States
Census Bureau,
Figure 1: Bar graph showing Percentage of Product ownership in US Households
(United States Census Bureau, 2014)
33. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 3
2014). Quarter 2 reports, however, show that the tablet market may now be saturated (Pettey &
van der Meulen, 2014). With the potential of a hybrid PC, HP should be able to evolve to
answer the new consumer’s desires.
Key Factors Driving Demand in the Industry:
Team 20 Consulting Services have revealed eight key factors that drive overall demand
for PCs:
CPI: Personal Computers Total School Enrollment US Internet Advertising Expenditure
Real Personal Consumption Multiple Job Holding Persons Consumer Personal Savings
Producer Price Index Seasonality
Evident in the industry trends, the consumer price index of PCs is an indispensable
variable in determining the quantity demanded. The index references the actual value of a 1997
PC which shows a rapid decrease until 2003. Since 2003, the CPI becomes asymptotic
indicating that the value of the PC has stagnated. We anticipate a negative relationship in our
demand analysis.
Total school enrollment should produce a positive contributor to the predicted quantity
demanded. We believed that school enrollment would have a significant effect on the sales of
PCs as most students ultimately purchase the products. According to our conducted survey,
people between the ages of 20-30 years reported school as the most important reason to buy a
laptop.
Under the current worldwide culture, internet is in everyone’s life and we can barely
function without it; therefore, we considered the effect of internet advertising expenditure as a
reflection on the predicted quantity demanded. We expected a positive relationship as
expenditure increased where there should be an increase in product demand.
To further our analysis, we considered recorded trends in real personal consumption. We
anticipated the macro variable would provide a positive relationship to demand. The variable
reflects personal spending per consumer adjusted to inflation further illustrating overall
consumer spending behavior and the overall state of the economy. The higher the real personal
consumption, we would expect higher sales of PCs (Oak, 2012).
Next, we considered multiple job holding persons. We rationalized that a person with
multiple jobs necessitated a PC or two in order to maintain organization. The need for
organization would contribute to more product demand and reflect a positive relationship in our
analysis.
We then considered consumer personal savings. In contrast to the majority of the
variables, we anticipated a negative relationship in demand. This variable reflects the
consumer’s tendency to hold on to old models as they continue to meet their needs. As this
variable increases, it shows consumers are not spending on potential “want” products.
Producer price index reflects the average change over time in selling prices received by
producers for their output. Higher PPI would illustrate a healthier economy flushed with
consumer spending (Bureau of Labor Statistics, 2014). We anticipated a positive impact on our
analysis.
34. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 4
Lastly, we considered the seasonality. We anticipated certain results depending upon the
time of the year. We rationalized Q3 and Q4 would be important indicators in our analysis as
students ready for the new school year and consumers tend to purchase more for the holidays
respectively.
Quarterly Data and Sources:
I. Consumer Price Index for Personal Computers:
Federal Reserve Bank of St. Louis. (2014). Consumer Price Index for All Urban Consumers:
Personal computers and peripheral equipment. Retrieved from FRED:
http://research.stlouisfed.org/fred2/series/CUUR0000SEEE01
II. Total School Enrollment:
United States Census Bureau. (2014). School Enrollment. Retrieved from United States Census
Bureau: www.census.gov/hhes/school/index.html
III. US Internet Advertising Expenditure:
Interactive Advertising Bureau. (2014). IAB Internet Advertising Revenue Report Conducted by
PricewaterhouseCoopers (PWC). Retrieved from Interactive Adveristing Bureau:
http://www.iab.net/research/industry_data_and_landscape/adrevenuereport
IV. Real Personal Consumption:
Federal Reserve Bank of St. Louis. (2014). Personal Consumption Expenditures. Retrieved from
FRED: http://research.stlouisfed.org/fred2/series/PCEC
V. Multiple Job Holding Persons:
Bureau of Labor Statisitics. (2014). Multiple Job Holders. Retrieved from Bureau of Labor
Statistics: http://data.bls.gov/pdq/SurveyOutputServlet
VI. Consumer Personal Savings:
Federal Reserve Bank of St. Louis. (2014). Personal Savings. Retrieved from FRED:
http://research.stlouisfed.org/fred2/series/PSAVE
VII. Producer Price Index:
Federal Reserve Bank of St. Louis. (2014). Producer Prices Index: Total Goods for the United
States. Retrieved from FRED:
http://research.stlouisfed.org/fred2/series/PITGCG01USQ661N
Multiple Variable Regression:
HP Quantity = -30604 – 0.261 PC Price + 0.4477 Total School Enrollment + 434 Quarter_4
The regression equation stated above best reflects the demand for HP PCs. Based on our
survey and our research on overall industry trends, the consumer desire to purchase PCs is
contingent upon the set price, amount of school enrollment, and the regular consumer attitude to
spend during the holiday season.
While consumers may hold on to their PCs and resist the pressure to upgrade, newly
enrolled students will need new PCs to meet school work load demands. By the winter season,
35. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 5
individuals who want to spend may seek out a new innovative way to meet their computational
needs. In both situations, however, consumers will still focus on price ranges less than the base
PC priced at $799-$999; furthermore, if a product answers the needs of a PC and the
convenience and portability of a tablet, HP may be able to win over consumers (Bajarin T. , Can
the PC Industry Resurrect itself?, 2013). In light of these results, an innovative PC-tablet hybrid
should sweep the consumer’s minds. The regression explains 85.11% of consumer demand and
highlights the seasonal timetable to introduce the “next best thing.”
The release of the Split x 2 hybrid should meet the consumer’s needs. Starting at $600, it
should facilitate the price conscious consumer while meeting 100% of the consumer’s needs
(Riofrio, 2014). Our model illustrates the times the new innovative models should be released
and which market to focus on. New students will start looking for practical alternatives to meet
convenience and work station needs.
Our key findings incorporate industry trends and our regression analysis. We confirm
that computers are a necessary school supply, the holiday season is the biggest sales driver,
customization has become an industry norm for Windows based PCs, and price will always be a
competitive factor for HP to address.
Forecasts:
Our projections for the Total School Enrollment variable are taken from the National
Center for Education Statistics’ “Projections of Education Statistics to 2022,” published in
February, 2014. This report has been published under the auspices of the U.S. Department of
Education since 1964. The report’s forecasting models are in turn based on assumptions about
population and economic growth, taken from the 2010 Census and from IHS Global Insight.
As seen in Figure 2, the student enrollment statistic’s predictive power comes from its
incorporation of a broad set of macro variables, including forecasts of fertility rate, immigration,
disposable income per capita and unemployment. As William J. Hussar, economist at the NCES,
explained to us, the disposable income variable is expected to have a positive sign, as increased
income increases people’s ability to pay for postsecondary education (Hussar, 2014). The
unemployment variable is expected to have a negative sign, as increased unemployment lowers
the opportunity costs of attending school.
In addition to being a comprehensive macro-indicator, Total School enrollment accounts
for one important driver of PC sales, which is the education sector. As HP states in its Annual
Reports, the education sector is a significant market for its products. As enrollment and school
spending rise, there is increased demand for PCs, which are learning tools for new students and
teachers.
Our 4th
quarter variable is just an indicator, used to account for the fact that HP frequently
shows increased unit shipments during the 4th
quarter. The 4th
quarter is regularly a time of
increased sales for vendors of consumer goods, corresponding with the holiday season in the
United States.
Forecasts for price (see figure 3) (National Center for Education Statistics, 2014)come
from applying the Trend and Season Forecasting Template, found in Complete Business
Statistics, by Aczel Sounderpandian. The price figures show price over time, adjusted for
functionality, with the functionality index year set at 1997. In other words, the drop in price
represents the loss of value of 1997 PC technology. This loss of value is a function of the
36. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 6
dramatic improvement of consumer computers. What once was a rare luxury is now
commonplace, as reflected in falling prices. As prices stabilize, approaching the asymptote,
present advances in PC technology reach their limit. Much as the car of today is hardly
differentiated from the car of 2000, the PC of today does not differ significantly from the PC of a
few years ago, at least from the consumer’s standpoint.
Application of Forecasts and Recommendations for Future Business Strategy:
The most obvious recommendation is that inventories should be highest in advance of the
3rd
and 4th
quarters, as this is the period when sales ramp up for the start of the school year and
for the holiday season. Our equation indicates that an additional 434,000 PC units ship during the
4th
quarter, and production should be scheduled accordingly.
The main conclusion of our analysis boils down to the fact that overall demand for the
traditional PC has flattened. Since Q1 2008, the rate of growth from a year prior has been
negative more than half the time. Of the thirty-nine quarters leading up to 2008, only six had
seen a negative rate of growth from a year prior. Additionally, annual growth rate by quarter
since 2008 has been less than one percent. That same rate had averaged at nearly fifteen percent
for the entire decade prior.
0
1000
2000
3000
4000
5000
6000
7000
71000 72000 73000 74000 75000 76000 77000 78000 79000 80000
HPPCShipmentsU.S.
Total School Enrollment
HP PC Shipments U.S. vs Total School Enrollment
0
500
1000
1500
2000
2500
19971
4
3
2
20001
4
3
2
20031
4
3
2
20061
4
3
2
20091
4
3
2
20121
4
3
2
20151
4
PriceofPCbasedonCPI
Price with Forecast
Figure 3: Graph illustrates the CPI for Personal Computers with forecast
Figure 2: Graph illustrates the relationship between PC Shipments and Total School Enrollment
37. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 7
Our analysis reflects our realistic outlook for future PC sales. Improving macro
conditions, entailed in our school enrollment variable, do presage a return to mildly increasing
demand. That said, any prediction of a return to the kind of growth commonly seen pre-2008 is
erroneous.
In order to avoid repeating the mistakes of the U.S. automobile industry, HP needs to
recognize that the attainment of increased market share and unit sales in the consumer PC
business would be a Pyrrhic victory. While there will continue to be some demand for new PCs,
which remain necessary tools for the student, the emphasis for the PC buyer will be on reliability
and durability. This is a consequence of the decline in PC innovation and improvement, as
indicated by the flattening of the drop in technology-indexed price. Accordingly, our
recommendation is that HP continue to focus on developing their new product line. At the same
time, HP should work on cost-cutting and distribution optimization, in order to remain
competitive, in this dawn of ultra-mobile and hybrid PC’s.
38. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 8
Regression Analysis: HP versus PC $ price, Total School Enrollment total, Quarter_4
Analysis of Variance
Source DF Adj SS Adj MS F-Value P-Value
Regression 3 93110539 31036846 125.74 0.000
PC $ price 1 492226 492226 1.99 0.163
Total School Enrollment total 1 27545675 27545675 111.60 0.000
Quarter_4 1 2407272 2407272 9.75 0.003
Error 66 16290422 246825
Total 69 109400960
Model Summary
S R-sq R-sq(adj) R-sq(pred)
496.814 85.11% 84.43% 83.28%
Coefficients
Term Coef SE Coef T-Value P-Value VIF
Constant -30604 3266 -9.37 0.000
PC $ price -0.261 0.185 -1.41 0.163 2.68
Total School Enrollment total 0.4477 0.0424 10.56 0.000 2.68
Quarter_4 434 139 3.12 0.003 1.01
Regression Equation
HP Quantity = -30604 - 0.261 PC $ price + 0.4477 Total School Enrollment
+ 434 Quater_4
Fits and Diagnostics for Unusual Observations
Obs HP Fit Resid Std Resid
1 892 1108 -216 -0.48 X
2 1047 1075 -28 -0.06 X
4 1644 1592 52 0.12 X
20 1385 2442 -1057 -2.23 R
52 5954 4398 1556 3.25 R
60 4138 5189 -1051 -2.25 R
R Large residual X Unusual X
39. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 9
800
1300
1800
2300
2800
3300
3800
4300
4800
5300
5800
19971
4
3
2
20001
4
3
2
20031
4
3
2
20061
4
3
2
20091
4
3
2
20121
4
3
2
20151
4
PCQuantityinUnits
HP Sales vs Predicted Sales with Forecast
HP sale(real) HP Sales(equation) Linear (HP sale(real)) Linear (HP Sales(equation))
40. H e w l e t t - P a c k a r d D e m a n d D r i v e r A n a l y s i s | 10
References
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techland.time.com/2013/04/15/the-ipad-sized-nail-in-the-pcs-coffin/
Bajarin, T. (2013, April 22). Can the PC Industry Resurrect itself? Retrieved from Time:
techland.time.com/2013/04/22/can-the-pc-industry-resurrect-itself/
Bajarin, T. (2013, April 8). Windows Blue and the Rise of Ultramobiles. Retrieved from Time:
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http://www.bls.gov/ppi
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increased-01-may-2012
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Experienced Flat Growth in Second Quarter of 2014, According to Gartner. Retrieved from
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Riofrio, M. (2014, June 1). A new crop of HP laptops flip or spin, and run Windows, Chrome, or Android.
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laptops-that-rotate-or-split-and-run-windows-chrome-or-android.html
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