Wednesday, May 23, 2012

Is It the Personal Computers or the Corporations?

Supposedly, a stabilizing economy in 2010 and 2011 would lead to a burst of corporate purchases of personal computers. Eventually, the computer makers said, corporations would have to replace desktop systems that in many cases date from 2006 and earlier.

Well, don’t hold your breath. The rebound never hit, and both HP and Dell, the two main suppliers of computers to large U.S. corporations, have had bad news to report this week. Dell’s earnings were down one third from last year. The earnings report was nearly as bad at HP, and though it recorded a slight increase in personal computer sales, that is in comparison to last year when HP was talking about getting out of that business.

Since then HP has reorganized its computer business twice. Tonight it confirmed reports of staff reductions of 27,000, or 1 in 13 workers. About an eighth of those will have to be layoffs, as that is too many workers to lose through attrition and early retirement in a one-year period.

So is this the death of the PC or just the whole corporate sector running scared when it comes to spending on equipment? Or could it be that PCs haven’t improved since 2005, so that there are no credible upgrades for a computer maker to sell?

It is important to note that the use of desktop computers is at an all-time high. Corporations continue to purchase new desktop computers, just not as many. And, they continue to use desktop computers made in 2004 and 2005 and are doing just fine with that strategy. How much computing capacity does it take to read and write email messages anyway?

Even after considering the rational explanations, the dearth of corporate investment in new computers is a sign that cubicle land is in less than vibrant financial health. The mass layoffs at HP may serve as a reminder that more corporate layoffs are on the way, even as the broader U.S. economy picks up steam going forward. It is not the twilight of the corporation any more than it is the death of the PC. But both are inching ever farther away from the center of economic life.