HP and Dell Are Just Victims of Tech Evolution

NEW YORK ( TheStreet) -- In most industries leadership tends to abide.

Kellogg ( K) is still a leading cereal company a century after the cereal boom went bust. Ford Motor ( F) and General Motors ( GM) still lead in cars. While their owners have changed with the years, the big studio names of the silent screen era -- Paramount, Universal, and United Artists -- remain vital today.

This is not true in technology. Most of International Business Machines' ( IBM) competitors from the 1950s and 1960s were forgotten by the 1970s. Since then whole technologies have been left behind, their pioneers with them:
  • Minicomputers were the story of the early 1970s, but market leaders Digital Equipment and Data General did not make it to the end of the century.
  • Word processors boomed in the mid-1970s, but leaders like Wang Labs and Lanier Business Products were trampled by the growth of PCs.
  • Graphic workstations from Silicon Graphics were all the rage in the 1980s. By early in the last decade SGI was headed for the scrap heap.

What seems self-evident today is that the PC paradigm -- the combination of TV, typewriter and tape recorder pioneered 35 years ago -- is fading out. It's being replaced by devices, the typewriter replaced by a more direct interface with the screen, the tape recorder replaced by memory chips and a wireless interface with the Web.

Microsoft ( MSFT) is doing all it can to remain relevant in the new era. Windows 8 is the most important product it has rolled out since it won the operating system from IBM over 20 years ago. If it can't convince consumers that tablets and phones running Windows 8 are the equal of those running Google's ( GOOG) Android or Apple's ( AAPL) iOS, it's in deep, deep trouble.

But Microsoft's old Windows manufacturing partners are in deeper trouble. That's the lesson of earnings releases from Dell ( DELL), reported at Investorplace.com, and Hewlett-Packard ( HPQ), reported by Business Week.

The end of the desktop era rips the heart out of these two companies. For years they have sourced their products from China, and as profits are squeezed out of the fading market Chinese brands like Lenovo, Acer and Asus are moving to the fore.

To be part of the device game, manufacturers have to fade into the background. Chinese companies like Foxconn are willing to simply source and assemble, giving all the brand profits to Apple. Google and Microsoft are trying to replicate this model as best they can, joined now by Amazon.Com ( AMZN).

What's left for HP and Dell are the clouds.

You can become an "arms merchant" for the cloud. You can build your own clouds and rent them as "public clouds." You can seek to build clouds for large clients and create "private clouds," then "hybrid clouds" in which workloads move between the public and private cloud realms.

HP and Dell are trying to do all these things. HP has some great assets in storage, both offer servers, HP has networking through the former 3Com, and both are offering to bring suites of cloud software, services and their own networks of public clouds to the market.

But this is a new business to both. As Dave Chernikoff writes at ZDNet, it's a very competitive business. Margins are going to be squeezed and brand advantage will be minimal.

We already know from HP's write-offs this week that the old "enterprise services" and outsourcing businesses were a dead end. We know the PC business is fading, that there is nothing HP or Dell can do to replace it and that cloud is going to be a tough market to crack.

Does it remind me of what happened to Digital Equipment, to Wang, and to SGI? Yes, I'm afraid it does. But it's technology evolution in action. Nothing stays the same. Everything, and anyone, can be replaced, sometimes suddenly and without notice.

At the time of publication, the author had positions in F, IBM, GOOG, MSFT and AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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