Airou Zheng gave Hewlett-Packard (HPQ) any number of chances. Zheng, a designer for game developer Beijing Kingsoft, paid $740 for her HP laptop in 2006. She had to send it back for repairs repeatedly over the next three years, and the motherboard died twice. Fed up, she switched to a Dell (DELL) in 2009. “I don’t want to use HP laptops anymore,” says Zheng, 24.
Getting Asian consumers such as Zheng to give HP another chance is going to be one of the toughest jobs facing new Chief Executive Officer Meg Whitman—or whoever ends up running the company’s $41 billion PC division, which HP is considering spinning off. The challenge will be to reverse a nasty market share decline in Asia’s two biggest countries, China and India. For years, HP was a leader in those markets, right behind local favorite Lenovo in China and ahead of all players in India. Now the company is slumping badly in both countries as it struggles with quality problems, management miscues, and increased competition. In China, HP is a distant No. 4, with less than 9 percent of the market, behind not only Lenovo but also Dell and Acer (ASIYF), according to Gartner (IT). It’s a similar story in India, where HP had 11 percent of the market in the second quarter of 2011, compared with 15 percent two years ago. Dell is now the leader there, with 17 percent market share.
The retreat is all the more painful because China and India are among the few major countries where PC demand continues to grow at a healthy pace. While the popularity of Apple’s (AAPL) iPad may be hurting computer sales in the U.S. and other developed countries, clunky old desktop and laptop computers still rule in emerging markets. Revenues are growing at double-digit rates in both China and India, where many consumers don’t yet own a PC. HP declined interview requests, with spokeswoman Clare Wareing e-mailing a statement to say that HP “is committed to the Chinese and Indian market long-term.”
In India, HP is suffering after scrapping its three national distributors in 2010 so it could rely on more distributors in fast-growing regions. The strategy misfired. Would-be customers often had to wait a week for new HP machines and ended up buying from better-prepared rivals. “Management has not been top-notch,” says Sumanta Mukherjee, an analyst in Gurgaon with CyberMedia Research. “HP is losing out.”
In China, HP endured a series of embarrassing recalls in 2009 and 2010 because of defective laptop batteries. The recalls prompted protests and lawsuits, and HP’s clumsy handling of the crisis didn’t win it many fans, says Sam Flemming, chairman of CIC, a Shanghai company that helps multinationals monitor the Chinese blogosphere. For Chinese consumers, the recalls are “like a tattoo in your mind,” says Flemming. “Every time you look at HP, you think of that.” Management turmoil compounded the problems. In September 2010, the company hired RueyBin Kao from Motorola to head its China business, but he lasted less than eight months before leaving for personal reasons, according to HP. Kao could not be reached for comment.
Although Acer and Lenovo have exploited HP’s missteps, Dell has been especially aggressive. It’s doubling the number of customer service centers in China to 2,000, many of them in smaller cities, and adding more retail outlets across India. China is now Dell’s second-largest market, behind the U.S., “and we are not going to see it ever go back to No. 3,” promises Amit Midha, chairman of Dell Greater China.