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Google Inc (GOOG)’s Surprising Progress in PC Hardware

No one ever calls Google Inc (NASDAQ:GOOG) a computer company. It has always been labeled as a technology stalwart, a search behemoth, and a tech titan. But, you might be surprised to know that Google and its partners are shipping computers like gangbusters. It’s even more of a shock at a time when computer shipments have declined for five straight quarters, according to Gartner. That’s a stunning decline that is hitting the likes of Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) where it really hurts.

The numbers

In the past four years, Dell Inc. (NASDAQ:DELL)’s net income has fluctuated as it tries to transform from a desktop PC hardware manufacturer to a company that provides enterprises with IT solutions. From $2.6 billion in 2010 to $3.4 billion in 2011, then back down to $2.3 billion in 2012, it’s hard to predict what will happen next for Dell and why privatization is an option.

Hewlett-Packard Company (NYSE:HPQ) directly competes with Dell Inc. (NASDAQ:DELL) on this front. Both companies are still in PC hardware, but as you can see from the chart below, the manufacturers in Asia — Lenovo, Asus, and Acer — are creeping up on Dell and HP. 2012 was not a good year for HP, with an $11 billion loss on a 5.4% drop in overall revenue. It hurts to be the number one shipper of PCs, as HP has had reductions in the number of PCs shipped since 2009.

Note: Lenovo bough IBM’s PC Hardware Unit in 2005 Source: Wikipedia

And as this happens where Asian companies dominate, sales are stagnating; with a small year over year decrease in 2012. 2013 is not looking good either based on Gartner’s report of five straight down quarters.

Note: Top number is units sold globally, bottom is percent change Source: Wikipedia

So, what is Google doing different?

Google Inc. (GOOG)Google Inc (NASDAQ:GOOG) is doing different by being different. Much like the heyday of Apple’s “Think Different.” Google is running a campaign similar to that with one for a computer “For Everyone.” It is selling cheap but well-built laptops that are designed and built primarily by Asian manufacturers like Acer. Known as Chromebooks, these machines can be purchased for as low as $220. In fact, Bloomberg recently reported that 20% to 25% of all computers sold in the United States for less than $300 are Chromebooks.

Chromebooks don’t come with fancy software, and they don’t come loaded with bloated features that other manufacturers ship their machines with. The operating system, called Chrome OS, was built from the ground up by Google Inc (NASDAQ:GOOG). It’s built to be a simplistic solution in a world now dominated with smartphones and tablets that are easy to use. And it is selling a bunch of them, loaded with all sorts of Google services and apps which will ultimately help the company boost its advertising revenue.

The Microsoft Corporation (NASDAQ:MSFT) angle

If you’re a company like Acer, and you are given a choice to sell a computer that doesn’t have a bunch of licensing fees like Microsoft Corporation (NASDAQ:MSFT) charges for its Windows operating system, what would you do? You would probably consider making Chromebooks in order to make more money from your already-thin margins.

That’s the decision that Acer has made, and it is also one that Hewlett-Packard Company (NYSE:HPQ) has decided upon as well, selling a $350-range Pavilion Chromebook. Dell Inc. (NASDAQ:DELL) is yet to jump into the fray, but it almost seems inevitable.

Microsoft Corporation (NASDAQ:MSFT)’s Windows Division has experienced a decline in income in the past few years. From 2010 to 2011, income dropped 5% to $12.8 billion. From 2011 to 2012, income dropped 6% to $11.4 billion. The company is trying to promote Windows 8 with an upgrade to 8.1 to fix some issues, but consumers and businesses are probably having a hard time in seeing the value of a pricey upgrade.

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