Rebooting their systems

Two computer giants prepare for a world no longer dominated by the PC

ROUND ROCK in Texas and Palo Alto in California are half a continent apart, but Dell and Hewlett-Packard (HP), two tech behemoths that, respectively, have their headquarters in those cities, have much in common. The two personal-computer makers boast impressive records as innovators—Dell in supply-chain management and HP in fundamental research—though each has lost some of its creative spark in recent years.

Both are battling to remain relevant in a rapidly changing information-technology landscape. Since Michael Dell returned in 2007 to the helm of the company he founded, he has overhauled its operations in a bid to revive its fortunes. Léo Apotheker, HP’s boss since last year, is due to announce a new strategy for his company on March 14th. He has been hinting that he, too, will want to make significant changes at a firm that is still reeling from the traumatic departure of its previous boss, Mark Hurd, after a fuss over his relationship with a female marketing contractor.

Among the trends the two firms are grappling with is the growing popularity of tablet computers, smartphones and other devices that let consumers work and surf the web on the move. Apple’s wildly popular iPad and other tablet offerings are starting to have an impact on low-end laptop sales. Gartner, a research firm, now reckons that global PC shipments will grow 10.5% this year, to 388m units, down from its previous forecast of almost 16%, partly because consumers are switching with such enthusiasm to tablets

An even more important trend sweeping the industry is the growth of cloud computing. This lets companies store and process vast amounts of data in huge warehouses of servers run by third parties. The data can then be accessed over the internet whenever and wherever needed. New competitors such as Amazon and Rackspace Hosting have jumped into this market and are trying to persuade companies they would be better off renting capacity “in the cloud” than buying their own servers from the likes of Dell and HP. Of course, the cloud-services providers themselves buy lots of servers, mainly Dell and HP ones—but their huge size means they can drive a hard bargain on prices.

The emergence of the cloud is also partly responsible for a third trend, “verticalisation”. This is the increasing tendency of makers of IT hardware, operating systems and applications to move into each other’s area of business, because their corporate customers no longer want to shop around for all these different bits and splice them together themselves. They now want all-in-one solutions they can just take out of the box and switch on—and which are well integrated with their cloud-computing systems. Furthermore, for providers like Dell and HP, spreading vertically into other parts of the IT business also offers the best hope for growth in a market that is, overall, maturing.

This has created a free-for-all, with software firms swallowing up hardware firms and vice versa. HP and Dell now face stiff competition from the likes of Oracle, a software firm that bought Sun Microsystems, a hardware maker (Oracle hired Mr Hurd as its president after he left HP); and from Cisco, a maker of networking gear which has moved into the market for servers. This rapid restructuring of the industry is prompting the big IT firms to get out of low-margin businesses, as Japan’s Hitachi did this week when it sold its disk-drive business to Western Digital for $4.3 billion.