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Death Of The PC? Not Yet, Despite Bad News from HP and Dell

Danielle Kurtzleben

Maybe that PC on your desk is a thing of the past. You'd be forgiven for thinking so, given recent news from the tech sector. Hewlett-Packard, top PC maker in the world, has announced that it expects to cut 27,000 jobs, or roughly 8 percent of its 350,000 employees, by October 2014.

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Meanwhile, other PC companies have their own difficulties. Dell also reported this week that its profit fell 33 percent in the first quarter, causing its stock to plummet. Add to that the fact that tablet sales are booming, on pace to nearly double their 2011 sales, according to information technology research firm Gartner. Still, data show that it's not yet time to eulogize PCs. Rather, it may simply be time for HP to bid farewell to an ineffectual business model, say technology experts.

"In my mind, the death of the PC is still greatly exaggerated," says Crawford Del Prete, chief research officer at technology market research firm IDC, noting that people still widely use PCs for work purposes. HP's quarterly earnings report, also released yesterday, in fact shows that its desktop unit sales were up 5 percent. And Gartner likewise earlier this year predicted that worldwide PC shipments would increase 4.4 percent this year from 2011, then grow again in 2013.

Meanwhile, Chinese manufacturer Lenovo, the second-leading PC manufacturer worldwide, saw an astounding 59 percent jump in its fiscal fourth-quarter net profit.

But none of this means that HP can simply cut costs and keep doing what it's doing in the area of personal computing. While the PC market remains solid, particularly in emerging markets, people in more mature economies are more hesitant to spend their extra cash on PCs than they once were, says Del Prete.

"I think in markets that are more mature, people are still buying PCs but perhaps [are holding off on] that second PC, or maybe they're hanging on a little bit longer or using some of the dollars they would have spent on a PC upgrade on a tablet to try that out," he says.

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In light of that, HP's future success may lie in drastically changing its image.

"They're looked at as someone [from whom] you can get solid goods and services at reasonable prices, but not as a strategic visionary," says Mark Fabbi, vice president and distinguished analyst at Gartner. "They don't bring real innovation of design. There's no lust factor for HP PCs. It's solid stuff."

The company clearly sees the need to innovate; in a statement, HP says that it plans to reinvest its $3 to $3.5 billion in savings from the restructuring efforts in part on research and development, "to drive innovation and differentiation." Exactly what that reinvestment looks like will be key.

That solid-but-uninspiring perception of HP is present both in the consumer and business world, Fabbi says, pointing out that HP does well with servers, where it had the top market share in terms of shipments in the last quarter of 2011. The question is whether it can increase its revenue as it cuts its costs. Generating more desire for its products is one key step towards driving that growth.

"They participate in a lot of markets, but they don't lead any markets," says Fabbi. Apple, he points out, shifted the market's attention to tablets. It has been some time since HP did the same sort of innovation, says Daniel Levinthal, professor of corporate management at the University of Pennsylvania's Wharton School.

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"I think you have to go back 15 or so, 20 years to their efforts in printing to really say, 'Wow. They helped create a new kind of product class market,'" he says. Printing has become a drain at HP, as reflected by its 10-percent year-over-year loss in imaging and printing last quarter.

So while PCs are perhaps still doing well, HP's best strategy going forward may very well be to edge into less exciting markets.

"It may not be in the glamorous consumer side. Maybe it's the less glamorous side of data storage devices, servers, and the software around that, that play to [HP's] historic engineering strengths," says Levinthal.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.

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