HP's and Dell's falls may be closer than you thought

Wall Street's Goldman Sachs turns on HP, while Dell's go-private drama lumbers along

It's a rare event: A big Wall Street investment bank told its clients to sell a major company's stock. As we saw during the 2008 financial crisis, the investment banks are among the last to admit their investments are at risk. Last night, Goldman Sachs -- one of the most influential investment banks -- told investors to sell their stock in Hewlett-Packard because it doubts the company's ability to turn around its floundering PC business, its troubled services business, and its shrinking printer business.

Goldman Sachs minced no words: Wall Street's "consensus is attributing an unreasonably high probability to the turnaround's success and incorrectly assuming fundamentals have already bottomed." In standard English, that means Goldman Sachs thinks Wall Street is too optimistic HP can turn around and that Wall Street is wrong to think HP has bottomed out -- Goldman Sachs says it hasn't.

Meanwhile, Dell's board of directors is mired in a game with potential buyers -- including founder Michael Dell himself -- seeking to take over the company. Some on Wall Street suggest the bids are part of a plan to earn fees for investment bankers and are not serious offers to fix Dell. In any event, they prolong Dell's stasis. Dell also revealed in a financial filing just how bad off it is, partially blaming Microsoft's much-disliked Windows 8.

As InfoWorld's Bill Snyder has detailed, HP and Dell are responsible for their own precarious positions. Windows 8 isn't the cause, even if it deprives both companies of a temporary hit that would mask the deep wounds both have inflected on themselves. (Read Snyder's take on Dell and take on HP.) It took years of bad management and flabbergastingly stubborn adherence to the Wintel platform -- similar to the steadfast blindness that put BlackBerry (née Research in Motion) at death's door as well.

Turning around either company will not be easy. Both organizations are finding their once vaunted PC businesses to be a ball and chain dragging them under, and their planned lifeboats -- a move into the business services business -- have sprung lots of leaks. Dell's focus on smaller businesses requires pricey efforts for relatively modest sales, and HP's foray into cloud management and enterprise services has become, as one insider told me, a complete disaster because the company didn't really know what it was doing.

Whatever emerges from the painful transitions, Dell and HP will be very different than the companies they are today. But I expect their PC leadership to shrink fast. All the major tech market research firms predict that tablets will outsell PCs this year for the first time, and PC sales have been declining for four years in a row. Windows 8 is only accelerating that downward trend. The sole PC makers to grow consistently have been Apple, whose Macs have not been business standards but may become so, and China's Lenovo. PCs will not lead Dell or HP to a comeback, even if Microsoft fixes Windows 8. People will still buy PCs for the foreseeable future, but they will be Macs or generic Windows systems.

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