Intel Woes and HP-Dell Wars Show the March of the Dinosaurs
Two news stories that seem unrelated actually indicate a deep and increasingly disturbing trend. First, Hewlett-Packard (HPQ) announced it would again try to trump the Dell bid for 3PAR (PAR), continuing its bidding war for the storage company. Second, Intel (INTC) reduced its third quarter outlook by a range of 2 percent to 8 percent, resulting in what John Paczkowski at All Things Digital called Intel's "Deceleron" announcement.
A bellwether company sees revenue falling off because of "weaker than expected demand for consumer PCs in mature markets." Two huge competitors pledge what is now a tenfold multiple of annual revenue for a company that could at best could offer a line extension to their current products.
The commonality is that these high tech giants are struggling because they try to hold to how things worked 10 or 15 years ago. But the world changes rapidly and yesterday's strategy does nothing for tomorrow's challenges. It's as though we're seeing a slow motion video about the decline of the dinosaurs. The problem is that they want to keep believing in the past.
It's been clear for some time that old expectations of how computers work and how people use them were doomed. More resources go up on the Web and centralize the computing power really needed. An increasing number of home and business users turn to lightweight clients because they don't need more. Companies focus on virtualization and cloud computing to make more efficient use of their investments in servers, networks, and storage. This is the atomization of computing and content and it is unstoppable.
When sweeping change is coming, the only way to survive is to adapt. Companies may find that means moving into a different business or even cutting back the size of the corporation, which is better than going out of business. It also means taking action in time. Trying to stop a freight train at the edge of a cliff is a sure recipe for disaster.
For years, Intel has focused on where its financial sweet spot had been: PC CPU chips. It has tried to move into other spaces, but far too late. Other companies have snapped up much of the business -- Apple (AAPL) has custom chips made for mobile devices and Microsoft (MSFT) also looks to be in the chip business. Intel's been successful at least holding on to much of the netbook business with the Atom chip, but that's a huge drop in income compared to an x86 CPU, and the company hasn't undertaken the massive restructuring it will need to handle a potentially declining income.
As I pointed out last week, HP and Dell had their earnings announcements and what seemed to be good news -- except that it wasn't. The pair are completely dependent on whoever is buying hardware. Corporate restocking made their fortunes this quarter, but software and services, which offer the hope of true diversification, were flat. Both companies essentially have the same approach to business as they have for years, even as they could see the context changing.
Few people are comfortable with change -- not small adjustments, but big shifts that can become necessary for survival. Only immense size masks the damage all three of these companies have sustained as a result. When they do pay attention, it seems to be to excuse themselves. Intel CEO Paul Otellini recently blamed government policies that are hostile to business for problems. Once, while giving a talk on some SEC reporting requirements, I heard attending executives complain bitterly about how regulations were killing them. I asked, "Are your revenue and profits higher than last year?" They said yes. I replied, "If you keep making more money, it's not killing you."
This is no time for executives to stick their heads in the sand or play the blame game. As one academic has noted, current trends suggest that by 2010, only 25 percent of the S&P 500 companies will still be on the index. No company lasts forever, and those that assume they can are probably on the fast track to extinction.
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