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They say bad news comes in threes, and it certainly has for the PC industry. First, {complink 2376|Hewlett-Packard Co.} announced last month that it was slashing its workforce by almost 30,000. (See: Counterculture: Slash & Burn May Not Save HP.) Then yesterday, Dell Inc. announced it plans to cut $2 billion in expenses over three years. And today the Wall Street Journal reported that {complink 9284|Lenovo Group Ltd.} expects sales in India to decline.
These announcements were not particularly shocking. PC growth is slowing. {complink 1544|Dell Inc.} said its overall revenue dropped 4 percent in its most recent quarter, led by slumping PC sales. HP has been trying to figure out what it wants to be since Meg Whitman took over in 2011. And even though Lenovo's warning concerns only India, it is the No. 1 PC brand in that country.
For the supply chain, the biggest concern is Dell, which said cuts from its supply chain would generate $600 million in savings. (It also told analysts that it would make fewer products.) Dell has long been renowned for its supply chain, which broke new ground with the build-to-order model. Whether it's called BTO, JIT, or something else, the concept of releasing inventory as it's about to be consumed is practiced across the industry. The practice has been a boon for Dell and other electronics companies, since they don't have to maintain inventory on their books. Wall Street loves it.
Wall Street also loves cost-cutting plans. Dell's stock price rose after it made its announcement. Analysts have upgraded HP's stock to “buy” since its announced plans to cut personnel. Lenovo's sales rose 37 percent from a year earlier, but most of its growth is coming from emerging markets — like India.
What more can Dell do with its supply chain? Manufacturing fewer products certainly would cut back on procurement. Focusing on fewer key products means Dell could further consolidate its purchases. Consolidation could lead to larger volume discounts and more leverage within its supplier communities. Vendor reduction is also likely, particularly if Dell is discontinuing some product lines. These moves are not revolutionary, but Dell wants to trim its supply chain, not reinvent it.
For the broader industry, Lenovo's view on India might raise a few red flags. The company cited economic slowdown and pressure on India's currency as reasons PC prices may rise and sales will drop. India is also being evaluated on a number of fronts as an epicenter for semiconductor manufacturing. If its economy weakens further, the kind of incentives major technology companies want (government investments and tax breaks) may not be viable. India missed the boat on manufacturing as companies moved to China. Losing semiconductor fabrication would be a huge blow.
It takes three events to converge to create the perfect storm. Let's hope this isn't an early forecast.
One of major reason for drop in slaes may be people awaiting Windows 8. With new OS introduction, there may be surge in sales for about one to two years.
I think financial situation still taking toll on electronics industry in total. Market is not looking good – unendless Europe zone crisis, job loses bearly every hour and while the consumers market only for mobile gadgets. Well, few enterprises might want to wait for Windows 8 before buying new PCs.
Please read this analysis by BBC financial reporter http://www.bbc.co.uk/news/business-18287476.
I hadn't thought about Windows 8. Good point.
Windows 8 will be very compact and efficient. Will give very good experience close to MacOS. We wneed to wait for few more months.
I think it is more than the new Windows OS. Competition in the PC industry is so tough with Lenovo, Acer and other players rolling out new ultrabook models every few months. It is a commodity market and how to make a difference? Perhaps Apple Mac will start gaining market share.
I wonder if the anticipation of Windows 8 has such a dramatic effect on sales. I can understand that it can slow down the sales but the primary culprit in the slow down in the growth of the PC market is the uptake of tablets and Macs.
The surge in the sale of iPad and the Macs is also due to the profitable value chain Apple has managed to create for iOS application developers. The ecosystem Apple has created for developers who want to get paid for their efforts is much more sound and profitable than what the PC world and Microsoft ever managed to offer until this date. Writing software for PCs is not profitable anymore and is expected to be free by definition these days.
Nowadays it is quite common to get orders from clients that specifically require applications running on iPads. One of my former customers which was happily using a Windows version of my software product is now requesting the new version to be iPad compatible. I have heard similar stories from other businesses as well. This is a simple example of how the PC market is losing its edge gradually.
Could it also be that the competition is affecting these companies. More people are buying laptops and HP and Dell are not the best laptops in the world. I wonder if all PC manufacturers are hurting as badly?
@Anna,
“strategic alliances to boost its cash position “
Nokia has yet to find those strategic partners that will be able to help stop its downfall. Who do you think is ready to enter into a stratetegic partnership with Nokia? So far the experience with Microsoft hasn't worked out well, why should we think that other partners will do any better?
@Hospice_Houngbo, I'm still giving Microsoft a chance here.
@Anna, I've been monitoring Nokia for quite some time, and thanks to the analyst service I'm using I've kept my distance from them. But today in the early morning I received an alert regarding some special instability in Nokia's today. I don't think they were talking about the +2% movement.
All in all — backed by my some professionals' reports, I'm inclined to believe that Nokia will really surprise us tonight. So inclined, that I bought some shares in the beginning of today's trade + a few more shares in the last 10 minutes.
(p.s. for more details, write me)
@Anna difficult to find more than the slightest hint of a glimmer of light for Nokia in this — not even an actual glimmer.
Ariella, What bothers me is that we've seen this before. RIM is going through it right now but others have had similar experiences, including Motorola. And, it's amazing how the strategy for climbing out are always so similar (and the results, by now, so predictable.) Why not try something other actions?
@Bolaji ah, to break out of the old paradigm box and try something really innovative? What are the odds of that happening?
I hope some of the readers that still have faith in Nokia are correct and the company will be able to pull out of the nosedive. But if Nokia has to finance it's palns, the junk status is going to hurt its efforts. Maybe Microsoft's pocket and dig a little deeper?
@Johnny, I applaud your risk taking steps. I'm sure you've read about Nokia' stock price concerns. By the way,why would you suggest that Nokia will surprise us tonight? When by all accounts, it's been a disappointing news from the management.
@Hospice_Houngbo, It's clear the partnership between Microsoft and Nokia hasn't taken off on a good start as anticipated. But I still think Nokia needs Microsoft. All hopes are pinned on Windows 8. But having said that, I don't think Nokia will benefit from a different partner as it stands. What's your thought?
Thank you Ariella. I'm in the same boat with you. Until something unique and different happen especially around its operating application – microsoft OS for me would not help Nokia out now or later. Besides, fine some shareholders may still want to keep hoping but they need to claw back and re-install Nokia's previous years confidence and credibility in mobile phone users.
@Ariella, Absolutely. It's partnership with Microsoft hasn't yielded much fruits. It's financial outlooks is depressing. Its laying off 10,000 of its workers. It's been one bad news after the other. There's definitely not going to be a sudden turnaround for Nokia.
@Anna of course Nokia needs partnership, i agree with that. I would prefer Microsoft & facebook partner Nokia, but now design alliance is of priority to competing well with others. I do sincerely i hope windows 8 could do what 7 has failed to achieve.
Wale, Would you buy a Microsoft tablet PC, though? The company just rolled out its first tablet PC today. See: Microsoft Windows 8 Surface Tablets: Big Hardware Play.
Anna, speaking for myself, it looks like an incredible story; considering how things are going on for RIM, apart Apple, who is the real competitor for Nokia? Feeling is they are doing wrong by themselves…have you a different opinion about?
@Wale, I agree design alliance is highly required. Like you I do hope Windows 8 brings a glimmer of hope ….success for both Nokia and Microsoft.
Thank you Bolaji. Ideally, buying Tablet computer not in my mind for some reasons but with Microsoft rolling out 2 different Tablets – Windows 8 Pro (Intel); Windows 8 RT ( ARM) this, i may probably have a change of mind. Surely, ARM processing tablet!
Why do i want to buy tablet? Reason “the Surface serves as a good Skype device, Sinofsky pointed out. The Surface includes dual array microphones and speakers .”
Moody's rating to degrade Nokia's shares to junk is in line with the sentiments of the inverstors. However, Moody give clear guidelines to Nokia about their (and market's) expectations so that Nokia could be taken as serious contender in the mobile segments.
However, do such rating really affect any company's strategy (short and long term)? Most of the time the ratings improve or downgrade well past the actual financial impact.
Hi Himan: I've seen companies pull up from downgrades, but not under the same circumstances. Global distributors Arrow and Avnet were both, at the same time, downgraded pretty badly (not sure if it hit the 'junk' level) becuase of the debt they were carrying. Otherwise, their financials were sound. Both companies got that under control quickly and are cnow onsidered undervalued by the analysts that watch them.
I agree. They've hedged their bets with MSFT so they might as well see it through and hope that something will pan out.
@Pocharle, I agree. That's my thought as well. It'll be beneficial for Nokia as well Microsoft. I just hope the union works.
It better. Or else Nokia will be up a looong creek without a paddle!
Well I feel Nokia will ride on whatever the barriers they have to face because the brand name does have created a market for them. This is a major blow but not significant enough to drop them off from the ladder itself.
It might be. In the US, I have not seen a Nokia-based device popular for a while now. If the new W8 mobile OS does not work out, what will they have to try next?
Yes in eurpoean contries its the Sony Ericsson which is more popular. Here in Asia I think Nokia, Smasung and Apple has some kind of a simillar maket which seems to be good for us.
“Yes in eurpoean contries its the Sony Ericsson which is more popular.”
Really?
I thought the iPhone was the leader in that region as well? How far behind are they?
@Anna, You aren right,for me I don,t know what to think of Nokia anymore because here, Nokia is lossing the market day by day.
On the other hand, its risky not to take risks.
In west Africa, Nokia is really lossing the market day by day to Tecno. Before now it used to be Nokia in the hand of everybody majorly because of the quality, durability and the battery life. Tecno came to offer all those for a very cheap price.
Trust me, Consumers just changed their tastes immediately.
Kayode, What is “Tecno”? Is that a Chinese made mobile phone? Can you post a picture or send a picture to me.
Hi kayode. Yes, Nokia lost its grips on the smartphone market. The company has itself to blame for its misfortunes. But what's your view on its recent restructuring plans? Do you think it can fly again?
@Anna,
I believe Nokia can fly again but with much work. Nokia will have to do more than its doing now.Nokia still have a good history and reputation in the hearts of consumers except for the fact that it competitors are given people more options at cheaper price.
@Anna,
I believe Nokia can fly again but with much work. Nokia will have to do more than its doing now.Nokia still have a good history and reputation in the hearts of consumers except for the fact that it competitors are given people more options at cheaper price.