How Dell and HP Can Avoid Being Dragged Down by PCs

Neither Dell nor Hewlett-Packard is in danger of going under, but both are losing enough PC business to Lenovo to drag the rest of the company down. The choices that CEOs Michael Dell and Meg Whitman make in their attempts to cure what ails Dell and HP will define their legacies, columnist Rob Enderle writes.

By Rob Enderle
Fri, August 24, 2012

CIO — It is interesting to look at the IT market today because we see vastly different financial performance across the industry. Pure-play companies—those focused on either the consumer market or the enterprise market—such as EMC, IBM, Apple and Lenovo are doing well. With Apple, that is an understatement, as it is currently operating as the most highly valued company in the world.

This means the tech sector, overall, is strong. When you look at blended companies such as Microsoft, Dell and particularly Hewlett-Packard, though, you see weaknesses.

When you see strength in companies that are focused and weakness in firms that are trying to bridge markets, the natural conclusion is that the problem with the underperforming companies is one of focus. Let's look at Dell and HP and try to find a solution for both firms.

Dell Struggling With PCs, Tablets

For starters, both HP and Dell are struggling to sell PCs, especially when compared to Lenovo, which reported quarter-over-quarter growth of 35 percent, and IBM, which saw growth of 6 percent despite taking a hit in sales in Africa and the Middle East. This last quarter marked 11 consecutive quarters of growth for Lenovo and 38 straight for Big Blue.

Dell, meanwhile, declined in the PC space, with consumer revenue dropping 22 percent. Take away the PC business, though, and the company actually showed strong growth in virtually every other area, with enterprise solutions revenue growing 6 percent(in line with IBM's overall number) and server and networking revenue rising 14 percent.

These figures showcase where Dell's focus is—and the impact of where it is not. In hindsight, given the growth of Lenovo and IBM, you could conclude that the PC market was the stronger market—which offsets conventional wisdom substantially.

News: Lenovo North America President: "It's a Dual-Device World"

Furthermore, business customers aren't rushing to adopt Windows 8, so that segment isn't holding off for the new OS. However, there is some truth to the fact that BYOD is driving customers to consumer products. The hot portions of that market are tablets (mostly iPads, though Windows RT may change that) and smartphones (mostly Android phones). Dell, to date, has been unsuccessful with both platforms, having gone so far as to vow that there will be no Dell smartphones. Lenovo faces the same Windows 8 issues as Dell, but Lenovo's international strength differs from Dell's and may account for some of the difference in the numbers.

This suggests that Dell has two clear choices—return a heavy amount of focus to the PC space or follow IBM's example and break the company up. The status quo doesn't appear to be working.

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