Triple Whammy in the PC Arena

They say bad news comes in threes, and it certainly has for the PC industry. First, Hewlett-Packard Co. (NYSE: HPQ) announced last month that it was slashing its workforce by almost 30,000. (See: Counterculture: Slash & Burn May Not Save HP.) Then yesterday, Dell Inc. announced it plans to cut $2 billion in expenses over three years. And today the Wall Street Journal reported that Lenovo Group Ltd. (Hong Kong: 992) expects sales in India to decline.

These announcements were not particularly shocking. PC growth is slowing. Dell Inc. said its overall revenue dropped 4 percent in its most recent quarter, led by slumping PC sales. HP has been trying to figure out what it wants to be since Meg Whitman took over in 2011. And even though Lenovo's warning concerns only India, it is the No. 1 PC brand in that country.

For the supply chain, the biggest concern is Dell, which said cuts from its supply chain would generate $600 million in savings. (It also told analysts that it would make fewer products.) Dell has long been renowned for its supply chain, which broke new ground with the build-to-order model. Whether it's called BTO, JIT, or something else, the concept of releasing inventory as it's about to be consumed is practiced across the industry. The practice has been a boon for Dell and other electronics companies, since they don't have to maintain inventory on their books. Wall Street loves it.

Wall Street also loves cost-cutting plans. Dell's stock price rose after it made its announcement. Analysts have upgraded HP's stock to "buy" since its announced plans to cut personnel. Lenovo's sales rose 37 percent from a year earlier, but most of its growth is coming from emerging markets -- like India.

What more can Dell do with its supply chain? Manufacturing fewer products certainly would cut back on procurement. Focusing on fewer key products means Dell could further consolidate its purchases. Consolidation could lead to larger volume discounts and more leverage within its supplier communities. Vendor reduction is also likely, particularly if Dell is discontinuing some product lines. These moves are not revolutionary, but Dell wants to trim its supply chain, not reinvent it.

For the broader industry, Lenovo's view on India might raise a few red flags. The company cited economic slowdown and pressure on India's currency as reasons PC prices may rise and sales will drop. India is also being evaluated on a number of fronts as an epicenter for semiconductor manufacturing. If its economy weakens further, the kind of incentives major technology companies want (government investments and tax breaks) may not be viable. India missed the boat on manufacturing as companies moved to China. Losing semiconductor fabrication would be a huge blow.

It takes three events to converge to create the perfect storm. Let's hope this isn't an early forecast.