Plagued by cost-conscious corporate buyers and smartphone-loving consumers, the personal-computer market has become a dangerous place to do business.
Hewlett-Packard , the world's largest PC manufacturer, announced Wednesday it will lay off 27,000 employees, or 8 per cent of its work force. The layoffs, which are the largest in HP's history, come as the computer-maker tries to find a way to get profits growing again at a time when global sales of information technology (IT) are stagnating and only a handful of PC companies are seeing their fortunes improve.
HP's announcement – which the company made while announcing fiscal second quarter earnings that were down from a year earlier – came at the end of a trading day in which rival PC manufacturer Dell saw its share price take a 17 per cent beating after earnings missed analyst expectations. Like HP, Dell has been struggling to reinvent itself as more than just a computer company as worldwide PC sales slow after decades of healthy growth.
Some observers look at the global IT business as a bellwether for the economy. Certainly the financial crisis in Europe has not helped the technology industry.
In a report issued earlier this month, Scotiabank analyst Carlos Gomes predicted global tech spending growth will settle at about 5 per cent this year, after hitting nearly twice that rate over the past two years. Spending in regions such as Western Europe – the second-largest tech market and a region hit hard by the euro zone crisis – will actually decline this year, he added.
PC makers face challenges that go beyond the general IT slowdown. Increasingly, consumers are spending money on upgrading their tablets and smartphones, rather than their desktops.
"Tech is facing an accelerating shift from older technologies (servers, PCs, routers) to new technologies (mobile devices, sensors, cloud computing)," Mr. Gomes said. "Smartphone shipments overtook PC sales in the final months of 2010 and continue to advance in excess of 50 per cent per annum."
Both HP and Dell have previously tried to cater to the fast-growing smartphone and tablet markets, with little success. Dell will likely make another attempt later this year, building mobile devices to coincide with the launch of the latest version of the Windows operating system from Microsoft.
The Windows launch will mark a make-or-break moment for many PC companies, because operating system reboots tend to spark a cycle of computer purchases. Research firm Gartner predicts global PC shipments will rise a modest 4.4 per cent this year, with stronger growth in 2013, driven largely by the Windows refresh.
But in the meantime, the PC industry appears to be taking on the same shape as other tech sectors, such as Web search and mobile devices, with one or two top-tier players, and everyone else playing catch-up.
Gartner data shows two PC-makers, Lenovo and ASUS, posted the biggest year-over-year PC shipment growth, jumping 28 and 21 per cent respectively. HP saw 3.5 per cent growth, and Dell's shipments declined 1.6 per cent during the same period.
Regardless of where the wider PC market is going, HP appears focused on cost-cutting. The layoffs, which CEO Meg Whitman described as necessary to put HP "on a path to extend our global leadership and deliver the greatest value to customers and shareholders," are expected to save the company upwards of $3.5-billion (U.S.) in the 2014 fiscal year. HP plans to slash jobs primarily in the form of early retirement offers.
Investors seemed to approve of HP's cost-cutting. Despite unexciting quarterly results, the company saw its share price soar more than 11 per cent after hours on Wednesday.