Unfortunately for PC makers, that won't happen. Consumers are going to continue to choosing tablets and smartphones over PCs despite Haswell's longer battery life at cheaper prices.

Intel Singing Same Old Song

As Intel has done for years, with each new generation of processor, the company digs out the PowerPoint slides used to market the previous generation of chips, changes the codenames and touts the latest increase in battery life and performance. This time around, the mobile version of Haswell is expected to get 50 percent more battery life with no loss of performance from the previous generation.

In addition, spinmeister Intel has been touting the low prices PC buyers will find in stores during the industry's crucial back-to-school and holiday shopping seasons. Ultrabooks will sell for as low as $499, a whopping $500 less than the rival MacBook Air from Apple, and thin-and-light notebooks will be selling in the $300 to $400 range, Intel executives told financial analysts in mid-April.

Along with low prices, stores will be stocked with new designs, such as notebooks that convert to tablets or have detachable displays that become tablets. Many of the new mobile PCs will have touch-enabled screens, courtesy of Microsoft Windows 8.

"If you look at touch-enabled, Intel-based notebooks that are ultra-thin and light using non-Core processors those prices are going to be down to as low as $200, probably," Intel Chief Executive Paul Otellini, who stepped down last month, told analysts.

Nevertheless, a new chip, low prices and new PC designs were not enough for IDC to change its prediction that PC shipments would fall almost 8% this year, much steeper than the roughly 3% drop last year. Tablets and smartphones are responsible for the decline because they let people hold on to their PCs longer. Why buy a new PC if your more convenient mobile device can surf the Web, play video and access email?

(See also: Tablets Killing Desktops Faster Than Ever)

"The vast majority of PC sales are replacement sales, and if I keep my PC longer, then replacement sales are going to go down," IDC analyst Bob O'Donnell says.

Chip Power Doesn't Sell

In the 1990s, people paid attention to Intel's latest and greatest processor, because PCs were so darn slow. Every new generation of chips from Intel held the promise of a peppier PC.

Today, people are more interested in convenience. No one cares that the ARM chip powering nearly all tablets and smartphones isn't close to the performance level of Intel's Core processors. As long as ARM is good enough to handle what the devices are made to do and aren't sucking down battery power too fast, then consumers are happy.

Because Intel has yet to crack the tablet and smartphone markets, it's stuck in a PC world of evolution, not revolution. There is nothing in PC manufacturers' product portfolio that's truly innovative.

Intel could get out of its rut next year, if its next-generation Atom microarchitecture, dubbed Silvermont, is successful in the tablet and smartphone markets. But even then, the chipmaker will be playing catch up.

With each generation, Intel chips deliver higher performance and better power efficiency. But that alone isn't enough. They have to help create a mobile device that wows consumers, and that remains elusive.

Image courtesy of Shutterstock.

If there is anything new about the news coming out from IDC's Quarterly PC Tracker, it's the increase of the rate of the PC's decline. IDC had initially predicted a decline of "1.3% in 2013 followed by a gradual increase in volume." Now the analyst firm is predicting a sharper decline of 7.8% in 2013 and 1.2% down in 2014.

2011 may have been the "peak PC" year, when 363 million units shipped. In 2012, 349 million units shipped, with only 321.9 units predicted for the 2013 calendar year. The market is expected to recover a little - by 2017, IDC estimates that 333 million will ship.

These numbers include shipments on both desktop and portable PCs, which is what IDC labels notebook and laptop PCs. That 2017 recovery will have no help from desktop PC sales: shipments are expected to drop from 148 million in 2012 to a predicted 134 million in 2013 and 124 million in 2017: a 16.5% contraction over five years.

Any recovery in the market will fall squarely within the portable PC sector: shipments were 201 million in 2012, and will be down to 187 million this year, but possibly up to 210 million in 2017, which is a net 4.3% uptick for the portable sector.

But where the real growth in portable devices is in the tablet sector. "T]ablet shipments are expected to grow 58.7% year-over-year in 2013 reaching 229.3 million units, up from 144.5 million units last year," [according to the press release, "IDC now predicts tablet shipments will exceed those of portable PCs this year.

"In addition, IDC expects tablet shipments to outpace the entire PC market (portables and desktops combined) by 2015," the company reported.

Tablets are not only going to be more prolific, they are going to be smaller. The IDC data is already seeing a sharp decrease in sales of tablets in the 8"-11" size range, and a healthy increase in tablets with less than 8 inches of screen size. As you can see in the table below, by 2017, 57% of tablets will be in that sub-8" range.

Worldwide Tablet Market Share by Screen Size Band, 2011 - 2017

The shrinking of tablet size means that a lot less productivity will be getting done on these devices, as smaller tablets are very much consumption devices. This may explain the predicted increase of notebook sales: people will still want portability, but they also will need a platform on which to actually work.

As for the desktop PC, there looks to be no bright future in sight for the once-mighty platform. That which does not move, it seems, dies.

Image courtesy of Shutterstock.

Intel yesterday reported a 25% profit decline on revenue of $12.6 billion, which the company blamed on the general blahs plaguing the PC market. But two numbers stood out: a 6.6% drop in PC microprocessor revenue, and a 7.5%  increase in revenue from data centers.

Playing Both Ends — Maybe All Three

What does this mean? At the moment, PC sales are in free fall as consumers rush toward tablets. But as customers snap up mobile devices, tapping into cloud-hosted apps, demand for the servers that power those data centers increases.

Meanwhile, Intel is moving farther into phones, tablets, and networking, where further profits beckon. The bottom line is this: if consumers chase mobile apps, Intel will be there, powering cloud data centers. If they stick to the PC, or shift to new lightweight ultrabooks, Intel stands to benefit thanks to its 80+ percent market share. And if Intel can convince more phone and tablet makers to buy into its chip offerings, it'll win there, too — though that's much more of a gamble at the moment.

Intel CFO Stacy Smith told analysts that the company's second-half outlook looks stronger than expected because of two things: a stronger macroeconomic environment, which would boost overall spending, plus Intel's presence in PCs, servers, phones and tablets. 

To that, Intel chief executive Paul Otellini added a third component: price. "We have a certain spec for ultrabooks, and that is the product that Stacy said is going to be centered at as low as $599 with some [products] to $499," Otellini said. "If you look at touch-enabled Intel based notebooks that are ultrathin and light using non-Core processors, those prices are going to be down to as low as $200 probably."

Intel's Hole Card: Mastery Of Moore's Law

Otellini, who will retire in May, can fairly be criticized for not investing in tablets and other mobile devices earlier. But from an operational standpoint, Intel is winning. The company continues to leverage its core asset: manufacturing, creating a ripple effect that continues to carry the company into new markets.

In May, Intel will launch "Haswell," its next-generation 22-nm chip. Rival AMD is a generation behind, at 32 nm. This forces AMD to out-engineer Intel — again — in terms of chip design to keep up, and AMD arguably hasn't done that. "This leadership in materials science and manufacturing technology is the foundation on which our future success will be based, arming us with the world’s lowest power and lowest cost transistors," Otellini said, and he's right.

Normally, a drop in PC consumption, and thus lower manufacturing demand, would imply a decline in revenues. Not so. Smith said that Intel simply pulled older manufacturing equipment and accelerated a shift toward its next milestone, 14-nm manufacturing, and saved $1 billion in capital costs in the process. It also struck a "foundry" deal with Altera, in which it agreed to manufacture Altera chips on unused Intel equipment. If demand picks up, Intel can simply turn on production lines again.

Mobile and Tablets Still Hold Potential

After fumbling its StrongARM technology in 1997 — the processor architecture which now powers basically every phone on the planet — Intel shocked many by announcing X86 phone designs with Lenovo and other Asian manufacturers in 2012. Is Intel poised to take over the phone market? Absolutely not. But simply demonstrating the capability makes it a company to watch, and its reach may slowly grow over time.

So far, the "Clover Trail" Atom chip Intel debuted last fall for a new generation of convertible Windows tablets has barely left a ripple, hampered as it was by poor computing performance and a general disdain for Windows 8. In phones, however, Intel is combining Clover Trail with an applications processor and an LTE baseband chip into what's known as a system-on-a-chip, a tidy all-in-one package. First-quarter tablet volume doubled, and Intel expects it to double again — from a little to a little more than a little, one might expect. Still, it's a start.

Tablets, though, could be Intel's future. In the second half of the year, Intel plans to launch "Bay Trail," a quad-core Atom chip. (Intel brands its PC processors using the "Core" name; the non-Core chip Otellini referred to inside the $200 PCs is almost certainly Bay Trail.) If that's true, a $200 Windows-based tablet almost moves into impulse-buy territory. 

What Intel's irresistible progress in manufacturing technology means is that it almost doesn't matter whether Clover Trail or Bay Trail are successful. Intel should enable the combination of performance, power, and/or price that should offer Windows tablets some true competition to Android and iOS. Will ARM be able to keep ahead? If we're talking $200 price points, how much will it matter?

Meanwhile, Intel's hold on the enterprise market remains secure, as the vast majority of servers are powered by Intel X86 chips. Here, too, ARM chips have declared war, claiming that their low power offers a more cost-effective solution to Intel's power-hungry Xeon chips. Intel has deployed "Centeron," an optimized Atom chip for servers, in response. And software-defined networking, which steals some of the intelligence from a network router or switch and puts it inside a server, benefits Intel, too.

What Intel does best, though, is double down and double again, using manufacturing to make up for any shortfalls in design that its competition might otherwise exploit. It might not be the most elegant solution, but so far it's proving brutally effective.

Image source: Intel

But Apple is a consumer electronics company at heart; so future iPad models remained devoid of features that were needed to meet corporate requirements for security, deployment, manageability, up-time, support and training. In the meantime, Microsoft, Intel and PC manufacturers picked themselves up and plotted their comeback. After three hard years, PC makers have finally released Windows tablets that tech analyst firm Moor Insights & Strategy says will likely reverse Apple's gains in the corporate market.

Apple's Party Is Over

"Enterprise tablets now exist that provide the best of both worlds between end user and IT, which puts the Apple in a precarious position of needing to add more robust enterprise features," Moor says in a white paper released Monday. "Until that point, Moor Insights & Strategy recommends enterprises re-evaluate their iPad pilot and deployments."

In other words, the enterprise party is over for Apple's tablets.

The new Windows tablets that finally get it right when it comes to meeting the needs of corporations and their employees are the Hewlett-Packard ElitePad 900, the Dell Latitude 10 and the Lenovo ThinkPad Tablet 2. Moor makes a convincing argument as to why it believes these three devices will steer companies away from the iPad.

What's In the New Windows Tablets

Two crucial components are Microsoft's Windows 8 and Intel's Atom processor Z2760. The former provides a touch-based interface that's a key element of any tablet's appeal, while the former delivers the performance and battery life. In fact, a comparison review by AnandTech found that battery life with the Z2760 surpassed the iPad 4 when Web browsing.

Because Intel has built a competitive chip based on the X86 instruction set, the three tablets can run the latest touch-enabled apps for Windows 8, as well as Windows 7 apps. Among the most important app is Microsoft Office, the enterprise standard for office productivity. Office doesn't run on the iPad, and Apple's productivity tools are not regarded as being on par with Microsoft's.

There's also more baseline expandability with the Windows tablets. Depending on the vendor, the devices can come with a dock, USB, miniHDMI and microSD. Add other optional manufacturer-supported accessories and the iPad is left in the dust.

Other pluses include playing nicely with Active Directory, Microsoft's directory service for authenticating and authorizing users and computers in a Windows network. The tablets, through the Atom processor, also offer Intel security, which includes Secure Boot and the firmware-based Platform Trust Technology.

Overall, the fourth-generation iPad provides roughly a half-dozen enterprise features, while the Windows tablets have more than a dozen. Most important, those features are already in use in corporations, so there's no need to evaluate them before deployment, train IT staff or purchase new tools.

What this ultimately means is the Windows tablets will be less expensive when considering the total cost owning and managing the devices. In addition, they are more durable and as nicely designed as the new iPads, and have larger displays. The resolutions are less, but still more than adequate for businesses.

Some Disagreement

How much of a head start Apple has in the enterprise is tough to determine, since the company won't say how many iPads have been sold to businesses. However, a running tally of the top 100 iPad rollouts kept by SAP show that nearly 70 are K-12 schools, where Apple has always done well. Nevertheless, there are some notable names on the list, including the U.S. Air Force, United Airlines, British Airways, General Electric and the Walt Disney Company.

Not everyone agrees with Moor. Jack Gold, principal analyst for J. Gold Associates, believes the market momentum is still behind the iPad. Units within an organization, not the IT department, will often choose the tablet they want to use and many want the iPad.

"The iPad, and Android (tablets), will have a place as long as users demand it," Gold said. "And the Win8 devices will find a niche, particularly in those organizations that have company-owned assets that IT fully controls."

While Gold has a point, the advantages the latest Windows tablets have are too numerous for corporations to ignore.

Image courtesy of Wikimedia.

More Risk In Third-Party Apps

Rather than go through the expense of battling Microsoft directly, many hackers now focus on low-hanging fruit, such as the Java and Adobe Flash browser plug-ins, which are often left un-patched even by users who conscientiously update Windows and Office. This trend was highlighted in a new study by Secunia.

The security vendor found Microsoft's highly effective automatic security updates now address only 8.5% of the vulnerabilities in a PC. The rest have to be patched through updates from various software developers, each with their own unique process. The complexity leads users who are not security savvy to forgo updates, vastly increasing their risk of infection.

"There is, to date, no one fix-it-all solution," warned Morten Stengaard, director of product management and quality assurance at Secunia, in the company's blog.

Theoretically, Microsoft could overhaul Windows to place each third-party application in its own container, making it more difficult for hackers to load malware in the operating system. However, such a massive change would require Windows software vendors to rebuild their own products, which would have a ripple affect on every corporate and consumer customer.

"Microsoft, to some extent, is hamstrung by legacy code and what they've done in the past," Jack Gold, analyst for J. Gold Associates, said. "They can't just rip everything up and start all over again very easily."

Fewer Flaws In Microsoft Apps

Ironically, the third-party threat is blossoming even as Microsoft continues to get its own house in order. In 2012, out of all the known vulnerabilities in the top-50 PC programs, Microsoft products accounted for only 14% of them, the study found. The rest were in other software. And the share of vulnerabilities on a Windows PC coming from third-party applications has been growing. In 2007, they accounted for 57% of the security flaws, compared to 86% last year, Secunia says.

"It's well known that they [Microsoft] have put great efforts into improving security of the operating system and the applications that they provide," Stengaard said in an interview. "What we're seeing is the long-term involvement and dedication is now paying off."

Windows, Office, Silverlight and other Microsoft products are not ironclad, of course. Given enough time, knowledgeable hackers can find their way in through these channels. But in the world of cybercrime, most hackers are not interested in a challenge. Instead, they look for the easiest way to break into as many PCs as possible, to enslave the machines into the many armies of remotely controlled botnets, or to steal credit-card numbers, social-security numbers and corporate intellectual property that will fetch a good price on the underground.

Including both Microsoft and third-party applications, the number of PC vulnerabilities has dropped by 5% since 2011, and by 10% among the top 50 applications. Since 2007, though, overall vulnerabilities are up 15%, Secunia found, and that jumps to a whopping 98% increase among the top 50 applications.

Where The Danger Lies

Applications most likely to provide an easy path into Windows machines include Java, Flash, Adobe Reader and Apple iTunes, according to Secunia. If these applications are not kept up to date, hackers can exploit known vulnerabilities that enable them to load their malware via the PC's system memory.

In addition, all these applications have very large user bases, which makes it easier for hackers to find targets.

Why PCs have so much outdated software varies. Sometimes it's because the update process is too cumbersome, so they don't bother. Other times, the vendor is slow in fixing flaws that hackers are already targeting. Updating Java, an open platform for running software on any operating, system has been a pain for a long time. However, Java steward Oracle is working to improve the process and is getting updates out quicker, most experts agree.

In 2012, Adobe had the worst record for updating applications, according to Secunia. The software maker released patches at a rate 80% slower than in 2011, based on the time it took the vendor to release updates of vulnerabilities reported by Secunia.

Overall, though, patch speed for third-party apps is increasing, Secunia said:

In fact, in 2012, 84% of vulnerabilities had patches available on the day of disclosure. In 2011, the number was only 72%. The most likely explanation for this improvement in ‘time-to-patch’ is that more researchers coordinate their vulnerability reports with vendors.

Patching Is Critical

The vendor based its study on 6 million PCs, mostly in the U.S. and Europe, running its freeware called Personal Software Inspector, which checks for application vulnerabilities. Microsoft products accounted for 35% of the programs on the PCs.

If you take Secunia's study seriously, then the takeaway is clear. Even if patching all your software is getting more complicated,  making sure everything is always up to date is more important than ever.

Image by Fredric Paul.

The smartphone market is expected to grow. Again.

On Monday, IDC predicted that PC sales will fall 1.3% in 2013, and that smartphone sales will continue their explosive growth, topping 50% and displacing the legacy feature phone as the dominant mobile phone platform. 

Although IDC released the two reports separately, they're best considered together, for context. What IDC predicts merely reflects the conventional wisdom: that the age of the PC is ending, and that the smartphone is the dominant platform. And, if the Apple iWatch is real, and Google Glass becomes a viable platform, then we have the past, present, and future of the computing market: the PC, the phone, and wearable computing. 

The Windows 8 Phenomenon

The 2012 performance of the PC market could be written off as a consequence of Windows 8: the pause in sales before the launch, followed by what might be called a "mild" reception by the market. PC sales fell 3.7% for the year, IDC found, with an 8.3% drop in fourth-quarter shipments. U.S. PC sales fell 6.5% for the fourth quarter and 7.6% for the year.

"The PC market is still looking for updated models to gain traction and demonstrate sufficient appeal to drive growth in a very competitive market," said Loren Loverde, an analyst for IDC, in a statement. "Growth in emerging regions has slowed considerably, and we continue to see constrained PC demand as buyers favor other devices for their mobility and convenience features. We still don't see tablets (with limited local storage, file system, lesser focus on traditional productivity, etc.) as competitors to PCs – but they are winning consumer dollars with mobility and consumer appeal nevertheless."

Gartner hasn't yet released its 2013 PC forecasts, but has already said that PC sales dropped 4.9% in the fourth quarter, as it seems consumers just didn't really care about them any more.

Smartphones: A Worldwide Phenomenon

Smartphones, meanwhile, have worked their way through "mature" markets like the United States and into the high-volume, lucrative BRIC (Brazil, Russia, India, China) countries, IDC reports. As the smartphone begins selling in high volume in those regions, look for even higher shipment numbers: IDC predicts that more than 1.5 billion smartphones will be shipped by the end of 2017, worldwide, or more than two-thirds of the phone market. In India, for example, less than half of the phones sold there in 2017 will be smartphones, IDC predicted - and yet it will be the world' third-largest smartphone market.

Gartner, meanwhile, said that sales of mobile phones actually fell 1.7%  during 2012 - not because of lack of demand, but due to consumers turning to smartphones instead of feature phones.

Meanwhile, IDC reported earlier this month that tablet sales reached record levels, 52.5 million units, during the fourth quarter.

PC sales may yet rebound - Microsoft seems to believe that, and it still maintains close ties to enterprises and consumers. But, increasingly, the PC seems be a legacy device of interest to a slowly declining number of users.

Dell revenues fell 11% to $14.3 billion. Profits were down, too: 31% to $534 million. Dell's consumer business fell by a whopping 24% to $2.8 billion; The slogan "Dude, you're getting a Dell" is now a distant memory.

The earnings call is a unique event in American business; although chief executives occasionally deign to hear questions from business reporters, rarely do they sit down with their upper management and submit to questions about their past and future financial and operational performance. Calls following quarters in which a business dramatically exceeds expectations, taking a drink each time an analyst congratulates execs ("Great quarter, guys!") will usually result in a long nap under one's desk.

After a lousy quarter, on the other hand, analysts feel unusually liberated to ask the pointed questions that should always be asked. And - hurray! - some of them did their jobs on Tuesday.

Here are the five questions that Dell will need to answer going forward:

1. Does Dell Belong In The PC Market?

In many ways, this is the same question that Hewlett-Packard faced in the wake of Leo Apotheker's decision to shop the PC business, Meg Whitman's decision to retain it, and then the ultimate reorganization into a combined printer/PC business. With very little room for adding value besides bundling a printer with a PC, adding the crapware software that users hate, and striking out into relatively untested waters such as ultraportables and tablets, the answer seems to be: "Yes, but barely."

Dell's strengths are its XPS tier and its Latitude line of business PCs. But as Dell chief financial officer Brian Gladden noted, the growth continues to be in tablets and in the low-value desktop and notebook space - both areas where Dell, seeking higher profits, has consciously avoided.

2. Is There An Opportunity To Refresh Older Corporate PCs?

Yes, definitely. And that's the primary reason Dell won't bail out of the PC market any time soon - it has established longstanding ties with corporate America. This was one of the most telling quotes of the call:

"I think that’s really tough to get at, but the data that we’ve seen would suggest there’s still somewhere in the range of 40% of the corporate installed base for PCs that is XP or Vista that needs to be upgraded," Gladden said. "So that’s, I think, pretty consistent with the data that we see for our installed base, and for what we hear from our corporate customers."

Corporate IT departments rarely, if ever, update a PC operating system without refreshing the hardware, too. Microsoft may have to worry about corporate customers turning to Windows 7 rather than 8, but Dell doesn't care either way. And with support ending for Windows XP in April 2014, Dell knows there's a windfall ahead.

"All the data that we’ve seen, all the conversations we’ve had with customers, would lead us to believe that there’s still a significant refresh activity that has to happen in the next 12-14 months," Gladden said.

3. Is BYOD (Bring Your Own Device) The Answer?

Yes. Or it was in December, when Michael Dell said exactly that. 

"And in the customer conversations that we’ve been having, the interest in Windows 8 is quite high, even with commercial customers, who would normally wait a few releases to adopt the new versions," Dell said. "What we’re seeing here is really an immediate need, because CIOs are worried about the ramifications of a BYOD world. With Windows 8 products... we’re pleased with the incredible experience that they expect, while you get the security and versatility and reliability that your enterprise really requires."

Since then, Microsoft has reported terrific Windows 8 numbers, although there has been some suspicion that the company hid behind previouslysold Windows 8 licenses. Still, Dell and the rest of the PC industry will certainly help try and make Windows 8 a success. Ultimately, however, Michael Dell has bet his farm on Windows, while other hardware makers, like Samsung, have diversified into Android and phones. Time will tell who made the right choice.

4.) Will Server Customers Keep Buying From Dell, Or Roll Their Own?

If you're not following the datacenter market that runs the cloud services we use and love, you're may be unaware that Facebook has pioneered an industry-wide program called Open Compute, which publishes detailed specifications on building your own servers via components from no-name manufacturers. Facebook recently said that a major European datacenter would be constructed entirely from these "white box" servers, and companies like Rackspace have also signed on.

Revenue-wise, Dell’s Server and Networking Business unit grew 11% in the last quarter, to $9.3 billion. But ISI Group's Brian Marshall asked one of the key questions: given the Open Compute model, will the trend continue? Gladden waved off the question.

"It is relatively isolated to a few number of large-scale customers who can make the economics work, and given that, we’re still seeing strong growth in that business, and significant opportunities to continue to grow the hyperscale business," Gladden said. "So I don’t think it’s a new dynamic."

Gladden's right; most companies are not going to exert the time and effort to design their own servers, Open Compute or no. But over time, this may eat into the server businesses of Dell and others.

5.) What Effects Will Virtualization, Consolidation and the Cloud Have On Servers?

Virtualization, where a number of "virtual servers" can share computing resources, helps effectively consume underutilized servers, especially older hardware. Some of the older hardware can be retired, as data centers "consolidate" their hardware and run virtual machines on top of them to maximize their use. At the same time, as more cloud services are deployed, the number of servers they require goes up. Unfortunately, analysts have reported that the number of servers sold has flattened - the trends of consolidation and virtualization are holding down sales, and revenues are actually decreasing.

For a long time, notebooks became the escape route out of the quicksand of commoditization that has dragged the industry down. Then servers were the answer. Now, they're apparently sinking into the mud, too.

Dell may in fact continue to provide updates to Wall Street as it goes private; it hinted as much when it talked about a fiscal first-quarter earnings release. But as the company moves into the financial shadows, away from public scrutiny, it did not provide any guidance for the future. One can wonder whether its outlook is equally cloudy.

(See also: Michael Dell Goes To Hell.)

What The Deal Looks Like

Michael Dell and a collection of financial partners, including Silver Lake and MSD Capital, will buy up Dell's outstanding shares at $13.65 apiece, representing a 25% premium over Dell's closing price on Jan. 11., the day before the rumors of Dell going private surfaced. (A company like Dell that goes private must buy up all the company's outstanding shares, which means offering shareholders an incentive - a better price on their shares then they could otherwise get.)

The deal also includes a $2 billion loan from Microsoft, which is not a permanent investment. Terms of the loan were not disclosed. In addition, debt financing was provided by a number of Wall Street banks. Dell Inc. also said that a Special Committee in charge of the deal would be open to alternative proposals during a 45-day "go shop" period, although the person or group that proposed an alternative deal could be subject to termination fees of between $180 million to $450 million.

Michael Dell will retain his title as CEO and chairman, and will contribute his 14% stake in the company; which means that the company will buy up his shares, paying him a very large sum in return. Dell approached Silver Lake last August to take the company private, and the company formed a special committee at the time to evaluate its options.

What The Deal Means For Dell

“I believe this transaction will open an exciting new chapter for Dell, our customers and team members,"  Michael Dell said in a statement.

For Dell, going private means that the company can invest in new technologies and otherwise pursue risky strategies that shareholders could otherwise criticize. With the buyout, Dell Inc. answers to no one, save for the banks and Microsoft, who are funding the deal. It also gives Michael Dell himself an exit strategy, should he wish to step down or if the banks choose to replace him.

"We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise," Dell added. "Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision. I am committed to this journey and I have put a substantial amount of my own capital at risk together with Silver Lake, a world-class investor with an outstanding reputation. We are committed to delivering an unmatched customer experience and excited to pursue the path ahead.”

Microsoft: A Window into Dell's Finances

It's possible, however, that Dell won't go completely private. For the period of time that Microsoft's loan is active, Microsoft's shareholders are going to want to know how its investment is doing. Microsoft accounts for its investments on its income statement, and could break out the Dell investment as a separate line item. That number won't offer much insight into how profitable the newly private Dell is, or what revenues it will have pulled in, but it will indicate whether Dell's business is going in a positive or negative direction. 

“Microsoft has provided a $2 billion loan to the group that has proposed to take Dell private," Microsoft said in a statement. "Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future.

“We're in an industry that is constantly evolving," the company added. "As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform.”

So why Dell? Influence.

"Microsoft, with a $3 billion investment, would get a certain amount of control and influence over Dell," wrote Patrick Moorhead, a former corporate fellow with AMD and now principal of his own analyst firm, Moor Insights, in an email earlier this month. "Dell has pulled back from the PC business as of late and that is not good for Microsoft as its cash cow is Windows. An investment of this size could guarantee a longer term Windows customer."

Besides the consumer market, Microsoft could steer Dell toward being more focused on the Windows platform for the data center, rather than "trying to do everything for everybody," said David Johnson, analyst for Forrester Research, in an earlier interview with ReadWrite's Antone Gonsalves. In addition, Microsoft could get access to Dell's enterprise sales force and could provide a "converged infrastructure" that unifies the silicon, the hardware, the operating system platform and the management and operation tools.

The deal is expected to be completed by the end of the second quarter. Dell's future will become a bit more shadowed then, by its own choice.

Yes, Android. Technically, Android isn't a Linux desktop OS at all. It's a smartphone OS, one that now accounts for 75% of all smartphones shipped, according to IDC.

But this niggling distinction is as pointless as it is specious. As then Sun CEO Jonathan Schwartz pointed out back in 2005, "The majority of the world will first experience the Internet through their handset." This jibes with what I've been arguing for many years: the Linux desktop qua desktop is yesterday's war, because the web and mobile have largely obviated the distinction between computing form factors. In what ways is an Android smartphone or tablet not a Linux desktop? Is it a requirement that it be of a certain size and have a physical keyboard?

Of course not. As Jim Zemlin, executive director of the Linux Foundation, mentioned to me in an email last week, "Chrome combined with Android ... we had the year of the Linux desktop and nobody even knew it."

In other words, there's no more need for strained arguments about how the Linux desktop "arrived" because it is good enough for business productivity users, as Steven J. Vaughan-Nichols argued back in 2008, or even good enough for your grandparents, as I argued in 2010. Nor do we need to wring our hands in anguish over the in-fighting that kept us from developing a unified front against Windows and Mac OS X. And we needn't pine for "one little thing" like an excellent gaming experience to make the Linux desktop viable.

These arguments, while credible, are excuses for losing. But the Linux desktop didn't lose. It won.

Not only has the Linux desktop won, given Android's dominant, and growing, market share, but it is winning in high style. Android started off as a crappy-but-free alternative to Apple's iOS, but has recently become as good or better than iOS, largely thanks to Google's persistence. In so doing, Android has won over the general "desktop" user by being approachable and innovative. We've been pining for it for years, and it already happened. 

Now what are we going to talk about?

Image courtesy of Shutterstock.

IDC reported Thursday that the tablet market shot up at an almost unbelievable rate during the fourth quarter, as iPads and other tablets apparently became the gift to give and receive this holiday season.

Sun Setting On the PC?

Tablet sales not only spiked more than 75% from a year ago, to 52.5 million units, they grew 74.3% from the third quarter of 2012 - implying that some catalyst drove fourth-quarter sales in particular. IDC concluded that that spark was the Apple iPad mini, whose sales of 22.9 million units caused Apple tablet shipments to spike by 48.1%. However, the rising tide of Android tablets rose slightly higher over Apple's head, as Cupertino's market share dropped from 46.4% in the third quarter to 43.6%.

In a report released this month, IDC concluded that the "advancement of computing no longer starts and ends with the personal computer," an acknowledgement of the now-accepted belief that the PC is has lost its primacy: that the personal computer is following the smartphone and tablet, rather than driving it.

One question is how much of Microsoft's legacy in the PC is affecting sales of its Surface tablets. IDC reported that Microsoft sold fewer than 900,000 Surface RTs, the cheaper, ARM-based tablet that was released before the Surface Pro hits stores next month. 

Microsoft Surface "Failed To Gain Much Ground"

"There is no question that Microsoft is in this tablet race to compete for the long haul," Ryan Reith, program manager for the Mobile Device Tracker program at IDC, said in a statement Thursday. "However, devices based upon its new Windows 8 and Windows RT operating systems failed to gain much ground during their launch quarter, and reaction to the company's Surface with Windows RT tablet was muted at best. We believe that Microsoft and its partners need to quickly adjust to the market realities of smaller screens and lower prices. In the long run, consumers may grow to believe that high-end computing tablets with desktop operating systems are worth a higher premium than other tablets, but until then [prices] on Windows 8 and Windows RT devices need to come down to drive higher volumes."

For comparison, 900,000 tablets sold doesn't even match the Barnes & Noble Nook, which finished fifth with 1 million tablets sold. IDC estimated that the Nook sold 1.9% of all tablets sold, leaving Microsoft with about 1.7% of the total market. That's bad news for Barnes & Noble, whose sales dipped from 1.4 million units a year ago, and an indication that Amazon is clearly  winning the war between the two online book giants.

Still, it's all small potatoes compared to the leaders: Apple (22.9 million units, 43.6% market share), Samsung (7.9 million units, 15.1% market share), Amazon (6.0 million units, 11.5%) and Asus (1.0 million units, 1.9%). You can see how each vendor has fared in IDC's interactive historical chart, below. 

The first company took “Computer” out of its name on January 9, 2007. The other is now the leading seller of PCs in the world, by some measures at least.

Who Owns The Computer Market?

We all know that Apple is still a money machine - and the best in the world at it. But observers like Dan Frommer are now predicting that “Mac shipments… seem to have peaked for good." That is a stinging comment.

Lenovo, meanwhile, might be the best in the world at making computers - at least the desktop and laptop versions.

So where will these two behemoths end up over the next few years?

Opposing Approaches

Tom Peters' seminal book, In Search of Excellence, listed eight themes that defined the success of the corporations. One rule was “Stick to the knitting – stay with the business that you know.”

Apple might have rewritten that rule. While there have been questions about the research behind Peters’ book, there are few about Apple's success through creating and mastering new lines of business. The iPod, iPhone and iPad are powerful examples of how a company can define its own future by strking out in new directions.

Still, it is very interesting to speculate on which company’s strategy will win in the end. The question draws me back to my days at Apple - when I watched the company set off in the directions that now define it.

What might surprise some people is that the decisions that Apple made were often not conscious ones. They sometimes just happened in Apple’s unique corporate culture.

I have described trying to manage at Apple as trying to herd a bunch of cats over a wall with a pitchfork. To complete the image, there was one person whose voice would send the all the cats over the wall instantly. That person, of course, was the late Steve Jobs.

Different Paths To Different Places

Let me try to shed a little light on why Apple and Lenovo are fundamentally different.

The first difference is Lenovo’s strategy of making sure there is place to buy one of its computer very close to where the consumers are. Even in an emerging market like China, Lenovo's goal is to be within 30 miles of every consumer.

Apple, meanwhile, got to what I like to call its "metropolitan strategy" through a combination of missteps and vision.

In the early '90s, Apple wanted to strengthen its sales presence in the K-12 education market. Instead of hiring more people, it chose to strengthen the agent model by reducing the number of resellers who could be educations agents. As a manager in Apple’s Education division, I had to make some very difficult calls to small rural dealerships and tell them Apple was changing their contract so that they could no longer sell to education customers. For some of these small resellers, losing Apple's education business was a death knell.

That was a misstep.

The vision part came in when Apple figured out that its now-weakened resellers would never do as good a job as Apple-branded stores could. That was the genesis of the fabulously successful Apple Stores.

Not everything has changed. Apple has a history of disappointing its partners. Former and current Apple resellers have endless stories of Apple not letting them sell iPods to predatory specials at Apple Stores to chronic availability problems on hot products.

For its part, Lenovo has exclusive resellers in China and exclusive territories in India. Both setups are very different than the retail situation in the United States - but they've played a big part in Lenovo’s growth and are now actually targets for Apple.

The Business Market

Another huge difference is Lenovo's focus on corporate PC sales. Lenovo has doubled its success in that market, according to The Economist.

At one point, I actually led Apple’s most successful enterprise sales team. We tripled Apple’s sales into arguably the most Windows-centric market in the world, the United States government. But our tiny team were fish swimming against the tide in a company rapidly transforming itself into a consumer powerhouse.

Price Matters

Here's one final point. Apple has come to believe it cannot make anything worthy of the Apple brand at a low price point. Lenovo believes it can deliver quality and still serve customers looking for a good deal.

If they are both right, that's a big win for Lenovo.

(See Why Would Microsoft Invest $3 Billion Into Dell?)

Such a dramatic move would inject Microsoft much deeper into the hardware business, giving it the chance to help drive the kind of innovation that has recently eluded the PC industry. But it would also blow up its longstanding partnerships with computer makers.

Shaking Up The Industry

Microsoft is only in discussions to join an investor group for a Dell buyout, and has made no commitment, according to The Wall Street Journal. If Microsoft were to follow through, than its investment would likely be around $2 billion. And Microsoft refuses to even discuss the report. "We do not comment on rumors or speculation," a company spokesperson said. Computer makers are also staying mum. Asus, Lenovo and Hewlett-Packard either declined comment or did not respond. 

However, there's no reason why the rest of us cannot have a little fun exploring the implications of a deep Microsoft/Dell partnership.

First of all, this would simply be another step in Microsoft's push to shake up the moribund PC industry. Microsoft has good reason to take charge of its own destiny, rather than leave it to a bunch of partners that are more Keystone Cops than PC innovators. Since the release of the first iPad in 2010, tablets have joined smartphones in eating away at PC sales. During the last quarter of 2012, shipments fell more than 6%, marking the first time in over five years that the PC market has recorded a decline during the holiday season, according to International Data Corp.

So far, PC makers' most promising response has been the ultrabook, a thin and light laptop that is the Windows version of Apple's MacBook Air. Ultrabook specs, including size, weight and battery life, are dictated by Intel, which owns the name. So far, manufacturers have been unable to produce ultrabooks at a price low enough to attract consumers. As a result, PC makers are confusing customers with cheap alternatives with names like Sleekbook, which is made by HP.

That's clearly not good enough for Microsoft, which has made a radical overhaul of its operating system with Windows 8 and launched its own tablet after computer makers failed to slow sales of Apple's iPad, which dominates the tablet market today. 

Microsoft + Dell

Microsoft has apparently grown tired of this bonehead behavior, and Dell offers a way out. For starters, the computer maker has deep expertise in PC manufacturing and support, neither of which Microsoft knows how to do well.

Besides the consumer market, Microsoft could steer Dell toward being more focused on the Windows platform for the data center, rather than "trying to do everything for everybody," said David Johnson, analyst for Forrester Research. In addition, Microsoft could get access to Dell's enterprise sales force.

Finally, a Dell/Microsoft partnership could lead to "converged infrastructure" that unifies the silicon, the hardware, the operating system platform and the management and operation tools. Such systems, which are a relatively new trend in the enterprise market, enable companies to use the same infrastructure for multiple purchases, such as running applications and storage. "It would be a potential game changer," Johnson said.

Of course, other computer makers would unlikely be happy with Microsoft working so closely with Dell - and perhaps giving it preferential treatment. However, Microsoft has already become a competitor with the Surface tablet, and largely gotten away with it.

(See Acer Begins Competing Against Microsoft's Surface Tablet - In The Press)

Microsoft's hardware partners would likely have even bigger issues with a Microsoft-Dell hookup, but there's not really much they can do about it. "Once you decide you're competing with the OEMs (original equipment manufacturers), you're competing with the OEMs," said Michael Cherry at Directions on Microsoft. "You're already there. The investment just makes [Microsoft] a bigger OEM."

No one knows whether Microsoft will actually structure a deal to make Dell a premiere partner. But if it does, then Microsoft will effectively redefine its relationship with PC makers, creating a far different industry than exists now. And that could be a very good thing.

Best of all from Microsoft's perspective, investing in taking Dell private could give it most of these benefits for less than $3 billion, not the $24 billion and major complications a complete buyout might cost, if Dell were even for sale.

Image source: Dell and ReadWrite.

For the fourth quarter of 2012, AMD reported a loss of $473 million on revenue of $1.16 billion, with revenue off by about a third compared to a year ago, with losses widening from $177 million. Last week, Intel reported net income of $11.0 billion on revenue of $53.3 billion for the same quarter, with profits falling 15% and revenue down just over 1%.

Both companies reported that PC sales were off more than they had expected; Intel’s PC Client Group revenue fell 1.5% sequentially and 6% year-over-year, to $8.5 billion. AMD chief financial officer Devinder Kumar reported that CPU revenue dropped by 13%, as computer makers took a cautious approach to selling Windows 8 PCs. Graphics revenue dropped 9%, also tied to PC sales.

Intel, widely viewed as the dominant microprocessor provider from both a sales and a strategic perspective, rode out the storm. Yes, the company said that holiday PCs sales weren't as strong as originally expected at the beginning of the year, but that overall sales were nevertheless strong. Intel expects first-quarter sales to drop 6%, in line with normal seasonal declines.

"We think that there was an inventory drain and a worldwide supply chain for PCs in the fourth quarter," chief executive Paul Otellini said. "Our channel checks would suggest that a lot of older generation Windows 7 PCs were burned off in the quarter."

"Choppy" Outlook

Otellini didn't talk much about the expected outlook for 2013. AMD chief executive Rory Read, however, did. And what he said wasn't all that heartening.

"From my perspective, as I look at the PC market, that market’s going to continue to be choppy in 2013, particularly in the first half," Read told investors Tuesday. "Remember when you go back to Q1 last year, there was a lot of concern about the flood, how it affected Thailand and the hard disk [market], and the... supply chain was quite resilient. The numbers were quite strong out of Q1. We think there will be continued chop and pressure in the first half of 2013. This market’s a bit dynamic right now.

"We do think that Win8 is a very important event in the industry," Read added. "And I think that impact, or effect, will build over the course of the year. We expect the second half to be stronger than the first half from my perspective. As I look at the overall year, weaker in the first half, stronger in the second half, [overall] flat to slightly down. That’s our view of it."

AMD's Stuggles

AMD is struggling, no question about it. Any quarter where a company is forced to mention the minimum amount of cash it needs to maintain operations, as AMD did ($700 million, versus the $1.2 billion AMD actually has on hand) is not a quarter brimming with health and optimism. But AMD has positioned itself as a company executing some strategic changes, including investing heavily in the enterprise and its SeaMicro dense server business. 

Still, AMD did some things right, actually managing to increase the selling prices of its products in a brutally competitive market. Revenue fell only because the amount of chips it sold fell as the PC market slowed down. Banking heavily on its "Trinity" APU, which combines CPU and graphics, would normally be a smart move.

"The downturn in the overall PC market hurt both Intel and AMD but appears to have hurt AMD more," said Patrick Moorhead, a former AMD corporate fellow and now principal analyst at Moor Insights. "Servers are the bigger issue as it drives so much profit, but unfortunately AMD didn’t drive a lot of market share or profit dollars. Trinity was a good part but given [manufacturer] conservatism of not loading up for inventory during the holiday season, AMD felt the effects."

So: unexpectedly low PC sales before and through the Windows 8 launch, plus a somewhat normal, seasonally slow first half of 2013. With a bit of a Windows 8 hangover, to boot. Will the market revive in the second half of the year? We'll find out.

As we wait for Microsoft's earnings on Thursday, AMD and Intel have filled in some key data points. The overall story still seems unchanged, however: Expect Microsoft to report a slow start for Windows 8.

Image courtesy of Shutterstock.

The problem, as critics see it, is that going private robs Dell of critical cash at the time it most needs to spend that cash to acquire companies that diversify its lineup. It's a valid point, but that doesn't mean it's the only way to look at the situation. Even with a cash crunch, pulling Dell off the public market might be exactly what the company needs to avoid prying eyes that could toast its chances for future success.

Source: Dell.com The IBM Ideal

When IBM sold its PC business to Lenovo in 2004, everybody won. IBM pulled in some needed cash, exited a low-margin business and focused on the enterprise. Lenovo got instant credibility and brought efficiencies to a market that still had years of oomph.

Nearly everyone predicts that Dell wants to do the same with its buyback, but today's market is fundamentally different. PC sales are dropping, and Dell's share of that market is falling even faster. Plenty of PC manufacturers would be willing to fold Dell's brand into their lineup, but not at the premium investors would ask. Time isn't on Dell's side. The longer it waits to offload its PC business, the worse the deal will get. Going private would at least shield the company from having to make those details pubic.

The HP Boondoggle

Dell is smaller and more dependent on PCs than is HP, but the two companies line up well enough to illustrate how  a reinvention of Dell might work. 

HP is an absolute wreck. Investors are shaky, key executives are fleeing, and even Meg Whitman's rosiest turnaround scenario offers years of bleeding to come. HP has product problems, legal problems and PR problems, and it's headed for a fire sale. Seven out of the ten first-page results on a Google News search for "HP" were negative. HP is floundering in full view, and all the negativity is making it difficult for the company to manuever. 

So why didn't HP go private?

According to Gartner Senior Research Analyst Chris Gaun, "HP has a larger market capitalization, and going private might not have been an option." Raising $15 billion for a Dell buyout is pushing the envelope. $34 billion for HP would be in a completely different zip code. Gaun also points out other complications, such as the Autonomy investigation, which would add substantial risk and complexity to any buyout. HP is too big and too messy for a buyback.

HP CEO Meg Whitman claims low-margin PCs are essential to HP's survival as a full-spectrum technology provider. Lets' say Dell agrees. Going private still makes sense. 

According to Reticle Research Principal Analyst Ross Rubin, a buyback could benefit Dell, regardless of its goal. "Going private would insulate Dell from investor scrutiny and the expenses of running a public company. It would have more flexibility to continue the low-margin PC business if, like HP, it continued to see it as part of a solution - or spin it out and take the revenue hit, as HP was considering."

Source: Shutterstock Protecting The Brand

Even the high-margin products and services Dell wants to protect are being pushed toward commodity status. In the end, Dell will be trading on its name. Insulating that name from controversy that might cheapen it could be worth some belt-tightening.

Michael Dell photo from Dell. 

For HP, Flat Is The New Up

International Data Corp. (IDC) found that HP's fourth quarter PC shipments last year remained roughly flat from the year before. But that was enough to keep it at the top with almost 17% of the market. Soon after the scrap of good news hit the Web, HP public relations went to work. "We believe HP's position as the market share leader demonstrates out ongoing commitment to deliver superior PC products and experiences across customer segments," the press release said.

Woo-hoo!

Ironically, in tooting its own horn, HP highlighted its biggest problem, which is its need to cling to dwindling markets. The IDC report found that global PC shipments fell more than 6% in the quarter and more than 3% for the year. It was the first time in more than five years the PC industry had recorded a year-on-year drop during the holiday season, according to IDC.

The reasons behind the decline are well known. People increasingly favor smartphones and tablets, both fast-growing markets where HP remains a non-player. Heck, even Microsoft, which helped to usher in the PC era, sees its demise and is pushing tablets and smartphones as the future of computing.

But for HP, staying flat in PCs was so exciting it had to churn out a press release. That's not a good sign. But given what else is going on at the company, the temptation is understandable.

Due to management bungling over the last few years, HP has fallen ever farther behind its rivals in taking advantage of game-changing trends in the consumer and enterprise markets. The company paid a total of $24 billion for Autonomy and EDS to become a player in big data software and IT services, respectively, only to see both deals go down in flames through huge write offs.

HP Battles Workers

Meanwhile, HP is chasing distractions when its focus should be on innovation. In Texas, HP is in a tussle with customer General Motors, which is in the process of giving HP services the boot. Eighteen employees quit HP at the same time and without notice to join GM's efforts to take its IT work in-house.

HP is asking the state court for permission to depose two of the workers; a move GM has called "retaliatory" and a "fishing expedition," according to Bloomberg. It seems HP can't understand why anyone would want to flee a company that has promised Wall Street that it will fire 29,000 employees this year and next.

Bright Spots

HP's current state is not all dark. Last week the company launched a services center for in-memory computing, an emerging technology that significantly boosts application performance by keeping all data in system memory rather than on disks. The announcement came the same day SAP said it was making all its business applications available on its in-memory database called HANA. HP plans to throw its support behind HANA and is also working on its own in-memory platform, codenamed Project Kraken," according to InfoWorld.

Kraken-like initiatives are what HP's PR team should be crowing about, rather than the company's managing not to shrink in the cratering PC market. Chasing hot new markets - not scrambling to be the last PC vendor to avoid extinction - is the only way to change HP's image as a dinosaur.

Dinosaur image courtesy of Shutterstock.

Well, what the heck else were they going going to do? Billions of dollars of infrastructure is invested in manufacturing PCs, so it's not like the company was going to turn around overnight and say "Oh, well, that was a mistake, let's make tablets and nothing but tablets from now on."

And it's not like Lenovo is ignoring the whole concept of alternative computing platforms. The China-based hardware maker also pushed out a line of Android phones and a big-ass "Table PCs" that just barely avoids the raging failure of the original Microsoft Surface by (a) not costing a gazillion dollars and (b) not requiring the help of a furniture mover to be repositioned. HP is busy with its convertible tablets. And that's the story with pretty much ever hardware vendor you can name.

Still, it may seem weird that hardware vendors are putting in a lot of marketing and sales into "traditional" PC form factors when all the hype is about mobile and tablets.

Workers & Creators Unite!

But it's not so weird when you take two very important facts into consideration:

1. People still need to get work done
2. Right now the best software for productivity is geared towards the PC form factor. And that's true even of Web-based applications.

It's not that you can't get work done on a tablet. I write on my iPad all of the time and I've gotten to the point that I will haul it around instead of a full laptop when attending various events. But I always use a TouchFire keyboard overlay or an external Bluetooth keyboard with my iPad - anything to avoid typing directly on a glass screen.

And I always still bring my laptop along when I travel. Because even though I can (and will) write a complete article on the tablet, using most Web-based content management tools requires a keyboard and mouse/touchpad interface.

PCs Still Rule For Productivity

More generally, that's still the preferred interface for most business applications, not just website back ends. Using Google Docs (especially the spreadsheet) is painful on a tablet's browser, and unless it were heavily modified, I could not imagine using an application like GIMP long-term on a tablet (although I have done it done so in a pinch using remote desktop software).

Sure, there are tablet-specific alternatives for increasing numbers of common business applications, and many custom business apps are now going mobile as well. But many other apps still don't have mobile equivalents, and even when mobile versions do exist, they're not always as full-featured and easy to use as the original PC versions.

All the hardware vendors are well-aware that there are two kinds of computer users out there: those who consume and those who produce. Most "consuming" users can get by with tablets, smartphones and touchscreens. Many producers, on the other hand, still find such form factors limiting at best.

They may not be the meat of the computing market going forward, but they're never going away completely. Heck, someone has to get some work done, right? Hence, the continued investment in PC devices.

For my part, I hope new and better PCs keep on coming. if Lenovo and HP and everyone else (including Apple) ever abandon those who create in favor of those who consume, productivity would decline and make us all poorer.

As a teacher, I worry that my students are increasingly ill-prepared for business computing work because their parents are buying them the latest tablet or smartphone instead of something they can actually work on. As a father, I may lend my kids a tablet for fast research or messaging, but to write reports or build presentations, the PC is still the best way to go.

Image courtesy of Lenovo.

A Breakup Alternative

For Chief Executive Meg Whitman, selling off pieces of the crippled tech giant would be a much better alternative to breaking up the company. Whitman has opposed the latter option, starting with her decision in 2011 to nix a proposal by her predecessor, Leo Apotheker, to spin off the company's personal computer unit.

Since then, Whitman has ignored Wall Street analysts who say shareholders would be better off if the company spun off the division that sells PCs and printers from the one that sells software, hardware and services to companies.

As a less dramatic alternative, getting rid of businesses draining the company's limited resources, would help HP make better use of limited cash. In fiscal 2012, HP's free cash flow dropped to $6.9 billion from $8.1 billion the previous fiscal year, according to The Wall Street Journal. That's a trend that could spell trouble if not stopped. Without cash, a company will find it difficult to develop new products, make acquisitions, pay dividends and reduce debt.

Getting rid of underperforming businesses is one way to improve cash flow and avoid splitting the company. "Everybody zeroes in on printers and PCs as the things they should potentially sell, and quite frankly, there's not really a logical buyer for either of those businesses," Crawford Del Prete, analyst for International Data Corp., said. "And, those businesses generate a significant amount of cash, which Hewlett-Packard needs right now."

HP-UX And More Must Go

A more logical sale would be the Itanium server business. HP has spent a lot of money trying to drive sales of its HP-UX Unix server that runs on that chip architecture, while the business continues to shrink. In 2010, Microsoft said it would drop support for Itanium and Oracle said a year later it wants to do the same.

Another candidate for jettisoning is HP's low-end IT outsourcing business, which was included in the 2008 acquisition of Electronic Data Systems. Earnings from the services business has been falling, and last August, HP said it would write off $8 billion in goodwill from the EDS purchase.

Last year, General Motors, a major HP customer, said it would move away from outsourcing IT and take some work in-house. The announcement made industry observers wonder whether HP can handle those large-scale deals, Del Prete said.

Within HP's Personal Systems Group that makes PCs, workstations, tablets and printers, the company could sell the low-performing notebook and desktop PC businesses, which have been trumped in the market by tablets.

The low-end printer business that primarily serves consumers and small businesses could also be sold. However, printers are still used in emerging markets, so HP would be just as likely to hold off to see how profitable those markets become. "HP has a plan to drive those businesses, so I'd be surprised to see them get out," Del Prete said.

Finally, tape drives used for long-term data storage is a candidate within the company's enterprise servers, storage and networking division. Such a low-margin business would be best left to IBM and others with larger stakes in the market.

HP likely has other losers within its product lines that it would be better off without. Whitman should act quickly to get rid of the chaff and focus resources only on the profit generators.

Image courtesy of Shutterstock.