The Fading Fortunes of PC Firms

Hewlett-Packard's warning this week as it announced quarterly earnings threw Tuesday's equity markets into the tank at the market's open.

Predictably, a stream of analysts, portfolio managers and other pundits weighed in on HP, how it was different than Dell, whether it had major challenges ahead of it, etc.

I heard various analyses of HP's businesses, including focusing on corporate services.

To me, however, it simply boils down to HP, like Dell and Microsoft, being a company with the bulk of its fortune still tied to personal computers.

This is clear from inspection of the nearby price chart for HP, Dell, Microsoft, Apple and the S&P500 Index from 1990 to the present. The first three firms, which have relied more heavily on conventional personal or business computing for their revenues and profits, have had their stock prices languish or fall over the past decade.

In contrast, Apple, which transformed itself from a mere computer maker to a special-purpose digital device company early in the decade, has significantly outperformed the other three firms.

That is why, in my opinion, unless you are hoping for a near-term timing play on Dell or HP, or even Microsoft, for that matter, you will be disappointed if you buy or hold those equities anymore. They are obviously no longer the firms they once were, either fundamentally or in terms of market appreciation of their performances.

Apple is a very rare firm in its having arisen from near-disaster during the Scully era and been transformed by Jobs upon his return. Dell, HP and Microsoft are unlikely to duplicate that feat. They are, for the most part, firms, the fortunes of which rose meteorically, then plateaued, with the fortunes of the personal computer.

As iPods, iPads and enhanced smartphones increasingly cannibalize functions and activities PCs once dominated, the firms which remain largely defined by the latter are destined to continue to decline. Even having the largest share of the global PC market does HP little good when it has become a commodity business with a comparatively slow growth rate.