Two companies that were once titans of the desktop computer age will report what are likely to be, at best, modest second-quarter earnings this week.
Both Dell Inc. and Hewlett-Packard Co. have seen their share prices slowly slump over the past year, as investors become more and more skeptical about the prospects of two personal computer sellers in a mobile world.
Both companies face extraordinary challenges as the personal computer market continues to weaken, in large part because many consumers are opting for high-powered mobile devices, such as tablets, instead of desktops.
In response, HP and Dell have tried to gain a foothold in the mobile market, but have so far been unsuccessful. Two years ago, Dell began selling a phone/tablet hybrid called Streak, which ran on Google’s Android operating system. However, the device failed to gain much traction with consumers, and Dell all but discontinued the product by 2011.
However, Dell is expected to take another shot at the tablet market this fall, as it attempts to capitalize on much greater consumer awareness of tablets and the more mature status of both the Android operating system and Microsoft’s new Windows software, which was designed primarily for mobile devices.
HP’s failure in the mobile industry was arguably more disastrous. In the summer of 2010, the company purchased mobile device maker Palm Inc. for $1.2-billion (U.S.), hoping to use Palm’s technology assets to make a big push into the smartphone and tablet market. A year later, HP launched the TouchPad, an iPad competitor designed using Palm technology. But consumers balked at the price tag, and in an embarrassing turnaround, HP was forced to discontinue the TouchPad just a month after launching it.
Since the summer of 2010, HP has been in a particularly bad rut. The company has gone through three CEOs since that time, most recently replacing Léo Apotheker in September of 2011 after less than one year on the job. Meg Whitman, the former CEO of online auction house eBay, is the latest executive charged with turning the company around.
HP’s personal computer division has been hit particularly hard by the consumer switch to mobile devices. This May, after posting a massive profit decline, the company announced it will lay off some 27,000 employees.
But while Dell is still trying to gain some ground in the mobile device market, HP appears to have largely abandoned the area. Instead, the company is re-focusing on its personal computer division, and trying to increase its presence in the field of IT services and cloud computing.
Both companies face a number of hurdles in their quest for a turnaround. In fact, they will see increased competition this fall from a company that is arguably their greatest ally – Microsoft.
Dell and HP have been partners with Microsoft for years, running Windows on many of the machines they sell. But this fall, for the first time, Microsoft will build its own computing hardware, which is likely to compete directly with the products HP and Dell are trying to sell. The Microsoft Surface tablet, designed to launch alongside the newly revamped Windows 8 operating system, marks perhaps the most high-profile entrant to the tablet market since the iPad. The launch could spell trouble for Dell, which is trying to build tablets of its own, and for HP, which may see more of its computer sales siphoned away.
Given the companies’ performance over the past couple of years, analysts and investors will likely have low expectations for the earnings results this week. Indeed, decent numbers and another quarter without a CEO change might be enough to placate some investors.