HP’s and Dell’s falls may be closer than you thought (2024)

Wall Street's Goldman Sachs turns on HP, while Dell's go-private drama lumbers along

It’s a rare event: A big Wall Street investment bank told its clients to sell a major company’s stock. As we saw during the 2008 financial crisis, the investment banks are among the last to admit their investments are at risk. Last night, Goldman Sachs — one of the most influential investment banks — told investors to sell their stock in Hewlett-Packard because it doubts the company’s ability to turn around its floundering PC business, its troubled services business, and its shrinking printer business.

Goldman Sachs minced no words: Wall Street’s “consensus is attributing an unreasonably high probability to the turnaround’s success and incorrectly assuming fundamentals have already bottomed.” In standard English, that means Goldman Sachs thinks Wall Street is too optimistic HP can turn around and that Wall Street is wrong to think HP has bottomed out — Goldman Sachs says it hasn’t.

Meanwhile, Dell’s board of directors is mired in a game with potential buyers — including founder Michael Dell himself — seeking to take over the company. Some on Wall Street suggest the bids are part of a plan to earn fees for investment bankers and are not serious offers to fix Dell. In any event, they prolong Dell’s stasis. Dell also revealed in a financial filing just how bad off it is, partially blaming Microsoft’s much-disliked Windows 8.

As InfoWorld’s Bill Snyder has detailed, HP and Dell are responsible for their own precarious positions. Windows 8 isn’t the cause, even if it deprives both companies of a temporary hit that would mask the deep wounds both have inflected on themselves. (Read Snyder’s take on Dell and take on HP.) It took years of bad management and flabbergastingly stubborn adherence to the Wintel platform — similar to the steadfast blindness that put BlackBerry (née Research in Motion) at death’s door as well.

Turning around either company will not be easy. Both organizations are finding their once vaunted PC businesses to be a ball and chain dragging them under, and their planned lifeboats — a move into the business services business — have sprung lots of leaks. Dell’s focus on smaller businesses requires pricey efforts for relatively modest sales, and HP’s foray into cloud management and enterprise services has become, as one insider told me, a complete disaster because the company didn’t really know what it was doing.

Whatever emerges from the painful transitions, Dell and HP will be very different than the companies they are today. But I expect their PC leadership to shrink fast. All the major tech market research firms predict that tablets will outsell PCs this year for the first time, and PC sales have been declining for four years in a row. Windows 8 is only accelerating that downward trend. The sole PC makers to grow consistently have been Apple, whose Macs have not been business standards but may become so, and China’s Lenovo. PCs will not lead Dell or HP to a comeback, even if Microsoft fixes Windows 8. People will still buy PCs for the foreseeable future, but they will be Macs or generic Windows systems.

The PC era that revolutionized the home and workplace in the 1980s is over. A year ago, I detailed how the shift in user behavior known as consumerization was a fundamental threat to Dell and HP; what I wrote then is even truer today.

HP and Dell need a different way out, and their chosen services paths may not work either. IBM, PwC, Unisys, Accenture, and Deloitte have locked up much of the big enterprises’ gobs of money. Cloud providers are siphoning off much of the infrastructure spend that HP and Dell targeted with their “private cloud” pitches, and the virtualization boom led by EMC VMware over the last decade has greatly reduced the need for hardware gear in the data centers that are left. Without those big data centers to manage, businesses need less of the operational consulting that HP and Dell focus on, and the strategic consulting that is useful tends to come from one of the big providers, research firms like Gartner and Forrester, or boutique consultancies aiming at emerging areas such as software-defined networking, marketing tech, and mobility.

I know people who work at HP and Dell, and it’s sad to see their livelihoods threatened. HP’s fall is especially disheartening. Dell was never about product or technology innovation — its one innovation involved just-in-time supply chains for user-configurable products that had their prime 15 years ago — but HP has a long, storied history in innovation that is now threatened.

I’m no fan of CEO Meg Whitman, but I give her credit for making a serious effort to turn around a company saddled with a series of remarkably bad leaders since the disastrous 2001 acquisition of Compaq Computer: Carly Fiorina, Mark Hurd, and Léo Apotheker. I’m confident she’ll figure out how to revive or transform part of the company, but I doubt HP as we know it will exist for more than a few more years.

Dell’s fate is bleaker. Michael Dell has run the company since its founding, and he has not succeeded in steering it ahead of the post-PC tidal wave that now threatens it. Going private may take some pressure off the company, but it’ll likely be the same ship run by the same crew, only without quarterly investor pressure. Even if an outside investor outbids Michael Dell, the groups now targeting Dell don’t appear to have any other strategy than to milk it while they can — reminiscent of the Cerberus Capital Management’s strategy for Chrysler that nearly killed the iconic American carmaker five years ago.

Whether HP and/or Dell disappears or pulls a Novell or Lotus and becomes a wisp of its former self, in the PC space at least it’s looking like the changing of the guard is under way to Apple, Samsung Electronics, and perhaps Lenovo. Ironically, Apple is facing pressure around its directions these days, Samsung is in the midst of figuring out how to be a new kind of tech company, and Lenovo’s strategy isn’t all that different than Dell’s or HP’s old approach — it simply has the advantage of being in high-growth China.

It’s uncertainty all around — strange days indeed.

This story, “HP’s and Dell’s falls may be closer than you thought,” was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.