Dell, HP continue slow death march to irrelevance

The No. 2 US PC maker's earnings stank. Expect the same from the No. 1 today.

By InvestorPlace Aug 22, 2012 10:09AM

By Jeff Reeves

 

You can't cut your way to growth. But it sure as heck seems like Dell (DELL) is prepared to die trying.

 

Dell surprised nobody with an ugly earnings report on Tuesday after the bell. Yes, earnings beat forecasts, but quarterly sales fell short on an 8% year-over-year slide. That seems to be the order of the day on Wall Street, with earnings at a host of companies struggling to move higher against a tide of slumping revenue.

 

But of particular note was that Dell's full-year outlook fell short of Wall Street's expectations, and the company is on track for its worst fiscal year of sales since 2010.


So is there any good news for Dell investors?

 

Well, the tech giant plans to slash more than $2 billion in costs over the next three years, primarily from the supply chain and sales group.

 

That, and serial acquisitions that make it seem nothing short of desperate to figure out a post-PC strategy. Dell has acquired eight companies in the past 12 months, including a big $2.4 billion bid for Quest Software (QSFT) along with smaller shops Wyse Technology and SonicWall.

 

But none of the moves have been able to stop the bleeding on the earnings and sales front, and none of them have inspired investors. Dell's stock opened down Wednesday about 18% year to date and down about 35% from its spring peak. The stock also is down more than 50% from pre-financial crisis valuations.

 

Sound familiar? An aging computer giant that can't hack it in the 21st century? A long-term strategy that consists of a bunch of acquisitions and cost-cutting to distract investors but little real chance in direction?

 

I'm thinking of Hewlett-Packard (HPQ) here. It's almost twice the size of Dell but very much in the same boat. And as I wrote in May after HPQ posted horrible earnings that sent it to 2005 levels, the turnaround plan of Meg Whitman and company is doomed to fail, just as the past few years of antics yielded zero results.

 

Can't wait to see HP's numbers when it reports Wednesday. But hey, at least Dell has had some stability in the corner office.

 

The bottom line is that the post-PC age is here and Dell and HP have failed to adapt. As I wrote recently in my take on Apple (AAPL), even the leader in mobile is not immune to these growing pains as iPad sales cannibalize Mac sales. Chip-makers like Intel (INTC) also have been under pressure from the shift to mobile devices and have had to adjust strategy and expectations as a result.

 

But the sad reality is that while a company like Apple that has spearheaded the mobile revolution is insulated, and while a company like Intel that can shift its focus in chip production has a logical path to pursue, there's no way out for HP or Dell.

 

It's like Barnes & Noble (BKS) admitting that there's a shift to electronic publishing and e-commerce of book sales -- that doesn't fix the problem. Yes, B&N has the Nook. Yes, the company is ramping up its e-commerce capabilities. But B&N is still posting loss after loss, playing catchup in a game it will never win.

 

It's like Blockbuster, which tried to fend off Netflix (NFLX) but couldn't undo its brick-and-mortar model fast enough.

 

This happens frequently in business -- so-called creative destruction, whereby an innovative technology or a shift in consumer needs reshapes the demand equation.

 

Companies like Apple are benefiting from the "creation" side of this. As earnings showed once again Tuesday, Dell is taking a big dose of "destruction" from the mobile movement.

 

I fully expect HP earnings to reflect the same ugly story.

 

Jeff Reeves is the editor of InvestorPlace.com and the author of "The Frugal Investor's Guide to Finding Great Stocks." Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but no other positions in the stocks named here.

 

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7Comments
Aug 22, 2012 12:42PM
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Hewlett-Packard was a great company.  They were the gold-standard around the world for precision-made equipment .  Getting into PC's and staying in PC's was a mistake.  So was buying COMPAQ (the Q).  So was hiring the Carly.  So was firing Herd.  So is hiring Meg.   They have lost their way.
Aug 22, 2012 12:36PM
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HPQ is too concerned with political correctness to worry about their share price.  They're probably trying to find another great deal like Compaq (ha ha).
Aug 22, 2012 11:32AM
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HP deserves whatever they get. They took a great company like EDS, bought it (I am sorry..merged with it), and never talk about the service sector of their business. Wait until GM does their "in house" thing with IT. Oh, that's correct; the IT guru with GM happened to be another disgruntled HP exec. Let's see how Meg handles that contract loss when GM does not need them any longer. Look up; we soon will see Meg with her golden parachute! Cannot wait to see the earnings report later. I am glad that I sold ALL of my HP stock a while ago.
Aug 22, 2012 2:42PM
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Jeff,  Anyone that knows much about technology understands that HP is not going away (in fact it is time to start buying the stock). I work in IT (IT Director) and if you walk into any data center in the world the great majority of hardware and a much of the infrastructure software is HP equipment. This is not going away since worldwide computing power requirements will double in several years.  Also, there is a limit to the application of mobile technology. One cannot easily do certain functions on a tablet or smart phone. This is not going to change mainly because of the small size of the devices. There will always be a need for PCs in the home and business for heads down work and this need will continue to grow. The death of HP is a myth and just something for people that do not know any better to write about. If you recall IBM was in a mess 15 years ago. Is IBM dead?? Buy  HP Stock now, I did.
Aug 22, 2012 12:49PM
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Probably NOT.  Irrelevance to who? The shift in consumers to mobile gadgets and the slowdown in enterprise IT spending partly due to EU and US crisis certainly are having a compound effect on US PC makers. This cycle has been repeated before and will again with Microsoft's new emphasis on mobile PCs; phones and tablets. Dell and HP are doing the right things to reduce their reliance on consumers and put more emphasis on enterprises but the old PC era growth will not return with competitors like Apple, Lenovo, Microsoft, Sansung and Toshiba all taking market share as prices for all gadgets fall.
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