This paper examines the strategic position of Hewlett-Packard (HP) within the technology sector by analyzing industry economics and competitive conditions over the past decade. Using Porter's Five Forces Model, it evaluates buyer power, supplier power, competitive rivalries, the threat of new entrants, and the threat of substitutes as they apply to HP. The paper further applies an economic attributes framework and a framework for strategic analysis — covering value chain integration, geographical diversification, and industry diversification — to assess how HP has adapted to shifts in consumer demand, the rise of cloud computing, and mobile devices. The analysis concludes that HP's strategic moves, including the Compaq merger and global manufacturing expansion, have helped it maintain market dominance despite intense competitive pressures.
Over the last ten years, the technology sector has undergone a major transformation, driven in large part by the wave of innovations that have reshaped how consumers use electronic devices. Personal electronic devices have become smaller while gaining the ability to perform numerous applications simultaneously. Products such as the iPod, iPhone, and MP3 players have transformed the way people are entertained and communicate. As a result, a shift has taken place in the kinds of products being delivered, with consumers demanding devices that are smaller and packed with more applications (Cassella).
These two elements — miniaturization and multifunctionality — have driven a shift away from the traditional PC toward more mobile devices capable of storing information online through cloud computing. Simply put, cloud computing is when information is stored remotely on mainframe computers and servers rather than on a user's local device. By storing large amounts of data on mainframes and servers, those devices can support a far wider range of applications ("Cloud Computing"). This means that demand is shifting toward smaller gadgets for end users, large mainframe computers and servers for IT providers, and more routers, switches, and other infrastructure components. Technology companies have needed to expand capacity to adjust to these changes, while consumers simultaneously want devices that are small and versatile enough to use on the go (Robinson).
To adapt to these changes, HP has focused on becoming a major manufacturer of portable devices. The company has also concentrated on addressing demand from technology companies by providing mainframe computers, servers, and related products and services. Together, these efforts represent HP augmenting its current business model to keep pace with industry evolution (Robinson).
To fully understand the scope of the challenges and opportunities facing Hewlett-Packard, it is useful to apply Porter's Five Forces Model. This framework examines a company and its industry through five factors: buyer power, supplier power, rivalries among existing firms, the threat of new entrants, and the threat of substitutes. Each of these forces reveals important strengths and weaknesses for HP relative to the broader technology sector.
Buyer power refers to the degree of control consumers have over the goods and services they purchase. Factors influencing buyer power include brand loyalty, price sensitivity, the availability of substitutes, and the number of buyers and sellers in the market ("Chapter 1 Overview of Financial Statement"). For HP, buyer power is a significant challenge. The company sells a variety of products that are also manufactured by competitors such as Sony, Toshiba, and Lenovo. At the same time, the iPad has emerged as a product that is gradually shifting consumer preferences away from traditional laptops (Yarrow). This dynamic means HP must develop products that can compete against the most in-demand items in order to protect its brand image and extend its reach into other markets.
Supplier power refers to the control that suppliers have over the availability of certain products and services. Suppliers can enjoy advantages such as fewer competitors, greater control over product availability, and the ability to limit the emergence of substitutes ("Chapter 1 Overview of Financial Statement"). In HP's case, the company has some control over its supply chain by purchasing components from multiple manufacturers. However, sharp increases in raw material costs can directly affect HP's bottom line, making the company vulnerable to sudden commodity price changes.
Rivalries among existing firms reflect the intensity of competition within an industry, including factors such as industry growth rates, overcapacity, product differentiation, and competitive dynamics. HP faces fierce rivalry across its product lines — from laptops to printers — requiring the company to deploy differentiated strategies across multiple segments ("Chapter 1 Overview of Financial Statement"). A key example is the company's merger with Compaq in the early 2000s. As markups in the electronics industry declined and competition eroded profit margins, HP acquired Compaq to increase leverage and maintain its lead in the printer, desktop, and laptop markets. Despite significant integration challenges, the acquisition helped HP preserve its dominance in these categories ("Case Study").
The threat of new entrants refers to the possibility that new competitors could emerge and disrupt the industry. The technology market is relatively easy to enter due to factors including less regulatory burden, lower switching costs, and accessible capital for investment. HP's experience with Lenovo illustrates this threat vividly: after Lenovo completed its purchase of IBM's PC unit in 2004, it quickly became the largest PC maker behind HP and Dell, demonstrating how rapidly the competitive landscape can shift (Lemon).
The threat of substitutes concerns the possibility that alternative products could emerge and draw demand away from existing offerings. For HP, this threat is particularly relevant in the context of smartphones, which can perform many of the same functions as traditional PCs or laptops while costing less, being more portable, and supporting a wide range of applications (Wilcox). This trend illustrates how substitute products can quickly enter the market and displace top-selling items such as laptops, requiring HP to continuously adapt by broadening its product portfolio.
"Demand cycles, manufacturing costs, HP financial strength"
"Value chain integration, geographic and industry diversification"
When these different elements are considered together, they show how HP was able to adapt to the changes taking place in the industry by engaging in actions to maintain its dominance. The company offered a wide range of products at varied price points, and its merger with Compaq exemplifies how it expanded reach into new market segments. This approach allowed HP to maintain its core business model while simultaneously extending it to attract new customers.
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