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Triple Whammy in the PC Arena

They say bad news comes in threes, and it certainly has for the PC industry. First, {complink 2376|Hewlett-Packard Co.} 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 {complink 9284|Lenovo Group Ltd.} expects sales in India to decline.

These announcements were not particularly shocking. PC growth is slowing. {complink 1544|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.

8 comments on “Triple Whammy in the PC Arena

  1. _hm
    June 14, 2012

    One of major reason for drop in slaes may be people awaiting Windows 8. With new OS introduction, there may be surge in sales for about one to two years.

     

  2. Wale Bakare
    June 15, 2012

    I think financial situation still taking toll on electronics industry in total.  Market is not looking good  – unendless Europe zone crisis, job loses bearly every hour and while the consumers market only for mobile gadgets. Well, few enterprises might want to wait for Windows 8 before buying new PCs.

  3. Wale Bakare
    June 15, 2012

    Please read this analysis by BBC financial reporter http://www.bbc.co.uk/news/business-18287476.

  4. Barbara Jorgensen
    June 15, 2012

    I hadn't thought about Windows 8. Good point.

  5. _hm
    June 15, 2012

    Windows 8 will be very compact and efficient. Will give very good experience close to MacOS. We wneed to wait for few more months.

  6. t.alex
    June 15, 2012

    I think it is more than the new Windows OS. Competition in the PC industry is so tough with Lenovo, Acer and other players rolling out new ultrabook models every few months. It is a commodity market and how to make a difference? Perhaps Apple Mac will start gaining market share.

  7. Cryptoman
    June 16, 2012

    I wonder if the anticipation of Windows 8 has such a dramatic effect on sales. I can understand that it can slow down the sales but the primary culprit in the slow down in the growth of the PC market is the uptake of tablets and Macs.

    The surge in the sale of iPad and the Macs is also due to the profitable value chain Apple has managed to create for iOS application developers. The ecosystem Apple has created for developers who want to get paid for their efforts is much more sound and profitable than what the PC world and Microsoft ever managed to offer until this date. Writing software for PCs is not profitable anymore and is expected to be free by definition these days.

    Nowadays it is quite common to get orders from clients that specifically require applications running on iPads. One of my former customers which was happily using a Windows version of my software product is now requesting the new version to be iPad compatible. I have heard similar stories from other businesses as well. This is a simple example of how the PC market is losing its edge gradually.

  8. FLYINGSCOT
    June 16, 2012

    Could it also be that the competition is affecting these companies.  More people are buying laptops and HP and Dell are not the best laptops in the world.  I wonder if all PC manufacturers are hurting as badly?

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