If Facebook’s massive IPO represents the wealth created by the rise of social networking, mobile computing and the consumerization of IT, these tectonic shifts hold dramatic challenges to old-line technology companies built on yesterday’s revolutions. So even as Facebook mints a crowd of new millionaires and billionaires, Hewlett-Packard is preparing to send pink slips to some 30,000 of its employees.
All those people busy social networking on smartphones and tablets are spending less time accessing Web pages on a PC. And while companies like HP and Dell are counting on the release of Windows 8 later this year to help stem the tide, many observers believe a new PC operating system simply won’t be enough to reverse the waning clout of Windows PCs.
The contrast is stark. In Menlo Park, 3,500+ Facebook employees are celebrating their record-setting initial public offering. But just down the freeway in neighboring Palo Alto, HP is targeting the elimination of almost 10 times as many positions. The company is reportedly considering eliminating 25,000 to 30,000 of the company’s 320,000 jobs, about 8%. Apparently, CEO Meg Whitman’s plan is to use the savings to direct more than $1 billion toward building the tablets and cloud services that are reshaping the Internet. Details are expected to be revealed next Wednesday when HP releases its earnings.
Saving Money for Investment?
But is money the real issue here? Or is it about trying to deal with unprecedented levels of creative destruction?
So far, HP’s attempts to chase the new directions in computing have failed miserably. The company paid $1.2 billion for Palm in 2010, hoping to take its WebOS into tablets and other mobile devices. Roughly a year and a half later, HP shuttered its TouchPad tablet and tossed plans to make WebOS the software engine in consumer hardware products.
While many of HP’s wounds are self-inflicted, they also reflect the remarkable speed with which the computer market is shifting to mobile devices. In the next five years, tablets are expected to displace notebook-style computers to become the dominant personal computing platform, according to Forrester Research.
The trend is already well underway among the millennial generation, people born between 1980 and 2000. In the U.S., 30% of tablet owners in this age group have purchased a tablet in place of a PC. These young adults don’t want unwieldy laptops. They want computers that are light, easy to use and capable of sharing pictures and video on social networks. They want apps on a mobile device, not a new version of Windows.
Windows 8 Won't Fix Things
That’s why many analysts no longer expect the release of Windows 8 to jumpstart PC sales for HP - or anyone else. Whatever slick features Windows 8 introduces, a new PC operating system just doesn’t have the market power it used to have. “Windows 8 will prove to be a disappointment, at least out of the gate,” Keith Bachman, an analyst for BMO Capital Markets, wrote in a research note, according to Reuters.
HP can still make lots of money off PCs for a few years. Tablets need more time to get the power and applications needed to be able to handle all the tasks performed on laptops. But the growth is clearly coming in other areas.
In the meantime, HP needs a credible iPad-killer tablet and a laptop in the relatively hot ultrathin and light category, where Apple’s MacBook Air is king. Finding an entre back into the smartphone market wouldn’t hurt either.
Time Is Running Out
In addition, HP has to move faster into cloud computing to hold onto enterprise customers less willing to shell out big bucks for HP services centered around on-premise software and hardware. Those expensive solutions are increasingly competing against (perhaps) less powerful but much cheaper consumer-class services.
It won’t be easy. And it won’t be without pain, as 30,000 HP workers are about to learn the hard way. But time is running out for old-fashioned computer vendors like HP.