ChannelTrends: Innovation and Erosion of the Hardware Market

It’s been a few years since IBM sold off its personal computing business to Lenovo but, in the words of Yogi Berra, “It’s déjà vu all over again.” With last week’s announcement that HP is “exploring strategic alternatives” for its Personal Systems Group, a number of the company’s dedicated partners could be left with a significant gap in their portfolios.  Although they left the door open to spin off the division into a separate company, the organization’s preference appears to be a sale of the portfolio.


The vendor’s partners have to ask how the potential sale will affect their business, as well as their clients’ long-term technology plans. Is this move in the best interest of the channel or end-users? Decide for yourselves.


According to Léo Apotheker, HP president and chief executive officer, “The exploration of alternatives for PSG demonstrates our commitment to enhancing shareholder value and sharpening our strategic and financial focus.” While every corporation has a fiduciary responsibility to their investors, it would be good to hear details on how this sudden transition could impact channel partners and their clients. Solution providers will have to wait and find out what happens to the HP division, just like the rest of us.


Signs and Contributors to the Decline
The HP announcement is indicative of a larger trend in the IT channel: the shrinking hardware market. Consumers and business customers aren’t quite ready to pitch their PCs and servers, but there is definitely a shift in the purchasing habits and needs of both groups. Tablets and smart phones are taking over the consumer space —and making a significant push in organizations of all sizes. At the same time, virtualized servers reduced the number of devices needed to manage data and corporate operations.


Cloud services may contribute to a shift in hardware location, although not necessarily a decline in the number of devices. Companies can move more of their computing power off site, including the servers used to run an organization’s applications. The cloud allows businesses to increase the number and complexity of the business and operational programs they use, but it also allows them to consolidate and share hardware with other companies through the internet. That means most SMB organizations don’t need the same internal server capacity as they used to, eliminating much of the excess hardware they purchase. They now can consolidate their application use (typically through a third-party) with other small businesses in public or hybrid clouds.


Along with virtualization, these new hardware efficiencies will surely add to the continuing decline in server sales growth and put additional pressure on manufacturers (and their stockholders) to do something different. No, this segment of the business will not die until we can access and operate software without a device, but it’s definitely in the midst of a major transformation. The number of laptop sales has overtaken desktops, and smart phones and tablets are quickly gaining computing power (and business utility). As we saw with Google’s purchase of Motorola Mobility, the platforms and hardware competitors are changing rapidly.


After all, HP is undeniably one of the top technology companies. Why would their executives concede a major portion of their business unless the current bottom line and stock price wasn’t the focus? Many were surprised when the company announced it was retiring its mobility-oriented devices after purchasing Palm just 16 months ago. But without its own competitive hardware, HP has switched positions with Google which is able to offer webOS to LG, HTC and Samsung without a conflict. Only time will tell.


Worldwide Hardware Challenges
Let’s face it; hardware-centric companies aren’t faring well in the current economic environment, here in the U.S. or elsewhere in the world.  With the overall global economy struggling to stay out of another recession, even some of the thriving third-world nations can’t offset the negative sales projections. New markets bring new competition and continue to erode hardware margins.


Acer is the latest example of this challenge, posting a $1.7 billion loss for the second quarter of 2011, with a 32-percent year-over-year decline in company revenue.  Even though Dell’s revenue grew 1 percent during that same period, it includes services income in that figure. Not all is doom and gloom for hardware companies. After all, Apple continues to show strong growth while faced with the same economic challenges. Does its consumer-oriented product line give the company a better hedge against the negative business conditions, or are their other factors in play?


One of former Apple CEO Steve Jobs’ quotes seems to apply most to the issue. “A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path. Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.”

If you can think back to a day prior to the iPod, iPhone and iPad, Apple was floundering in the market with niche products and a real identity crisis. Jobs conceded that Microsoft had won the PC war and he set the company on a different path to prosperity.

Is HP trying to take the same approach, abandoning the segments of its business where it hasn’t been the innovator, shifting its focus to areas with the greatest potential? We’ll all have to wait and see.

Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at Bsherman@techsuccesscommunications.com.