Business Tech

Maybe Dell's dark days are finally over.

All signs are pointing to an improved PC market that will start to materialize later this year and really regain ground next year. Dell, the PC maker that's arguably been battered most by the downturn, also stands to make the greatest gains when the seas begin to calm.

Why Dell? The key to a full turnaround within the PC industry is when large corporate customers start buying computers for their employees again. Many had virtually stopped making new PC purchases due to increasingly tight budgets, combined with decisions to wait until Microsoft released the update to its operating system.

But there have been three good signs this week that point to an imminent recovery for the industry. On Monday, Dell took the trouble to send a press release announcing that it's seeing the demand for its products--PCs, services, servers--"stabilizing." That means more people and businesses are shopping, which it said will send its second-quarter revenue up slightly when it reports next month.

That was followed by Intel's upbeat outlook during its second-quarter results Tuesday. Intel's feel for the market is an important bellwether for the tech industry, and the chipmaker reported its best first-to-second-quarter growth in almost two decades. CEO Paul Otellini declared it a "clear expectation for a seasonally stronger second half."

Wednesday's study from PC market analysts at IDC showing better-than-expected growth worldwide in PC shipments serves to tie all the news together. For the second straight quarter, PC shipments were down, but beat expectations. Shipments were down just 3.1 percent last quarter, according to IDC. A recovery, it seems, is on the way.

Both Dell and Hewlett-Packard, the world's largest PC maker for several years running, will benefit when the recovery does start to kick in. Both are heavyweights in corporate computing. But HP has survived the tech industry slowdown better than Dell due to strong management, cost cutting, and its ability to react quickly to emerging consumer trends like Netbooks.

So when companies do start to spend money in large volume again this fall when Windows 7 is released, and into next year as budgets soften, Dell's improvement should be relatively better overall than HP's--if only because HP hasn't slipped that much in the past months. HP's shipments improved 3.6 percent in the most recent quarter; Dell's shrunk 17.1 percent.

The last few years have been rough for Dell. The company appeared caught off guard by the surge in consumer spending on laptops starting in 2006. HP (and Acer) recognized the change in the market, made some successful adjustments, and never looked back. Since then, Dell has employed several new tactics to invigorate its business, including getting back into retail, focusing more on product design, shaking up the organizational structure, and looking to shed costs through shutting down some manufacturing plants and several rounds of layoffs.

Though Dell is still trying to get its costs right, it has, however, paid a lot of attention to improving the breadth of its consumer offerings recently. It released the very pricey Adamo notebook several months ago and has also shipped more models of lower-priced Inspiron Mini Netbooks. While that hasn't reaped great results yet (its most recent earnings saw a fall of 63 percent), once the market is more stable, a wider variety of choices for consumers and its corporate customers should help.

And though Acer has gathered a lot of attention recently for its aggressive pricing and huge growth in the consumer market, an improvement in commercial spending could temper that momentum some.

"When we get to commercial recovery, (Acer) won't be as well-positioned as HP and Dell," said Loren Loverde, PC analyst for IDC. "They're still a smaller player in the U.S., and are half the size of Dell and HP. They don't have quite the scale in the U.S."

Acer's focus on selling more units at lower prices may also come back to bite it. When consumers are ready to buy more expensive systems--which carry better margins for the manufacturer--they're not likely to think of Acer, or its premium Gateway brand.

The others
Lenovo will continue to struggle while it figures out what kind of company it wants to be. It's still in the middle of navigating major management changes, and has had difficulty in kick-starting its consumer business. But the crown jewel, the ThinkPad business, can only be helped when companies begin to spend money on computers again. The company is well-established in China, a country that is still a growing market for new PCs.

Toshiba is heavily invested in the consumer market and particularly in small and medium businesses. As commercial and consumer spending go up, Toshiba should benefit with increased market share.

Now, when exactly this turnaround will happen is not entirely clear. Some analyst say the return to normalcy will begin later this fall, but it won't be complete until 2011. It will likely be gradual, and as Intel's Otellini noted earlier this week, when it does arrive, we should be prepared that it won't be a "recovery to prior levels."

The bad news: first-quarter spending on computing technology was worse than forecast. The good news: growth could resume earlier, according to a report Forrester Research released Tuesday.

The analyst firm reduced its forecast for 2009 information technology spending from a 3 percent decline to a 10.6 percent decline, but it's the hitting bottom, it said. Spending should return to growth in the fourth quarter in the United States, and in the first half of 2010 in Europe and Asia, Forrester said, basing its forecast on newly collected data.

"The big drops are not precursors to further declines," said Andrew Bartels, a principal analyst at Forrester. "Rather, we think they are evidence of a temporary pause in U.S. tech purchases, which we expect to start recovering in the fourth quarter, as businesses realize that they overreacted in the first quarter."

Forrester isn't alone in seeing signs of recovery.

It's "reasonable to be optimistic for 2010," said Google Chief Executive Eric Schmidt last week. And Gartner predicts that PC sales will start picking up in the end of 2009.

For 2009, some sectors are expected to be hit worse than others. Computer equipment spending should drop 13.5 percent, communications equipment's decline should be 12.4 percent, consulting and outsourcing should drop 8.6 percent, and software spending should have the smallest decrease, at 8.2 percent, Forrester projected.

Forrester has reduced its forecasts for 2009 IT spending several times.

(Credit: Forrester Research)

After more than a year of doom-and-gloom PC market forecasts, things are looking up.

Market research analyst firm Gartner predicts that the fourth quarter of this year will bring the beginning of a rebound that will gain momentum next year. With a stronger fourth quarter, the industry is on pace to move 274 million PCs worldwide this year. While that's still a 6 percent drop from last year's total shipments of 292 million units, it's not as bad as once thought. Earlier this year, Gartner was predicting a 9.2-percent decline for the year.

Gartner says next year's shipments will swing into positive territory, predicting growth of 10.3 percent. But its analysts say it's too soon to assume the worst is over. People are still delaying purchases while the overall economic outlook remains uncertain.

Customers will begin buying again, but not until later this year, and picking up through 2010 and 2011, according to Gartner Research Director George Shiffler. He also cautioned that the first wide availability of Windows 7 won't spur as many new sales as may be expected.

"Although the buzz surrounding Windows 7 has generally been quite positive, we don't expect the market to significantly deviate from its normal seasonal trends in reaction to its release," Shiffler said in a statement. "Unless Microsoft mounts a major marketing campaign in support of Windows 7, we think consumers will simply adopt the new operating system as they would normally buy new PCs and/or replace old ones. As for professional users, we still expect them to put off adopting the new OS for at least a year until they have fully tested their applications against it."

With the overall economy slumping, the tech industry is taking its fair share of hits. We'll keep updating the chart below as news of company changes comes in. See our complete coverage of how the tech sector is faring here: Tracking the tech downturn.

Know of a layoff not listed here? Let us know on this form or e-mail us.

The rough seas of the consumer electronics business has caused yet another smaller boat to capsize. Soyo, the maker of Honeywell TVs, has filed for Chapter 7 bankruptcy protection.

(Credit: CNET)

The news was first reported by the HDGuru.com blog. An SEC filing from earlier this week states that the company shut down operations on May 5, and filed for Chapter 7. Chapter 7 means the company is planning on liquidating its remaining assets, with no plans to reorganize under a new repayment plant to creditors, as a Chapter 11 filing would allow. The company could not be reached for comment.

Soyo makes LCD monitors, portable hard drives, and Bluetooth ear pieces, but is probably most recognizable since it owns the license to sell TVs under the Honeywell brand name. It's unclear how customers who recently bought Honeywell TVs are to deal with repairs or warranties issued by the company.

While Honeywell wasn't one of the top brands of TVs, its exit from the TV market is yet another sign of the ongoing shakeout taking place in the consumer electronics business. Syntax-Brillian, maker of Olevia brand HDTVs, filed for bankruptcy last summer, shortly after Philips turned over its North American TV operations to Funai.

More recently Pioneer has said it will no longer produce TVs after March 2010

Like Pioneer, Soyo's exit from the TV business was forced by mounting losses, in this case, more than $25 million in loans. Worldwide TV sales dropped 6 percent in the most recent quarter, as consumers find themselves with less discretionary income to spend on gadgets, and as the market for LCD TV buyers becomes increasingly saturated.

The typical way gadget makers deal with declining sales is to introduce new technology. But the TV industry is still years away from the next step of broad availability of OLED (organic light-emitting diode) TVs. They're still prohibitively expensive to produce on a large scale, and most companies working on OLED right now--Sony, Sharp, LG, Panasonic--don't seem to be in a rush.

Until then, expect to see more stories like this one, companies either dropping out of the TV business altogether, combining operations with a competitor, or licensing its brand away in certain markets.

Toshiba said Friday it expects to lose 350 billion yen for the fiscal year just ended on March 31, and will cut more temporary workers.

The company plans on letting go 3,900 temporary employees in its Japanese offices, according to a report in The Wall Street Journal, as well as reducing its capital spending this year by 180 billion yen ($1.8 billion) to 250 billion yen from the previous year. Almost 4,500 temporary workers were laid off previously.

The company now expects a net loss of 350 billion yen in the fourth quarter of its fiscal year that just ended. That's worse than the 280 billion yen loss previously expected, and it doesn't appear things will get better for the Japanese electronics company any time soon.

"We're seeing the economy nearing its bottom, but it is likely to stay at the bottom for a while," Toshiba Executive Vice President Fumio Muraoka said.

The PC market shrunk during the first part of 2009, but not as badly as expected.

Shipments of PCs during the first quarter were down 7.1 percent from a year ago, to 63.5 million units, according to IDC, which released its Worldwide Quarterly PC Tracker on Wednesday. That's an improvement from the 8.2 percent decline that IDC had projected.

It's a "good sign" for PCs, said Loren Loverde, the program director for the PC Tracker at IDC. Loverde says the better-than-expected results were aided by falling prices of PCs and more new PC buyers around the world.

It's telling of the depth of fear the economy is stirring up when these numbers are considered a positive sign, especially when placed in context: a continually volatile world economy, accompanying high rates of unemployment, and companies that continue to hold off on technology spending.

But it's not the only sign that things might be turning around for technology companies. Intel CEO Paul Otellini was surprisingly bullish on the market for PCs Tuesday during his company's earnings call, saying, "We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns...I believe the worst is now behind us from an inventory correction and demand level adjustment perspective."

It may not be totally behind us: IDC is predicting roughly 8 percent declines in growth for the second quarter. But there are several things to consider. Though consumer confidence is low, there are increasingly more PCs with lower prices to match available. Low-cost portables, like Netbooks, continue to be the bright spot for many PC makers, especially Acer and Asus, and helped to stem the overall decline worldwide.

And some regions are faring better than others. In the U.S., considered a saturated market for PCs, declines were kept to just 3 percent. Last month, Dell founder and CEO Michael Dell told an audience during a speech in China that the worldwide demand for PCs was "steady," and echoed IDC's assessment of U.S. consumers' continuing appetite. But of the top five PC vendors in the U.S., only Dell and Apple saw overall shipment declines when compared to the same quarter a year ago. Apple dipped slightly at 1.2 percent, but Dell's drop was more drastic at 16.2 percent.

"The U.S. PC market proved to be surprisingly resilient this quarter as notebooks were still seen as important purchases by many U.S. consumers," said Bob O'Donnell, vice president of clients and displays research for IDC in the report. And the gap between the world's largest PC maker, Hewlett-Packard, and the rest of the field is growing. HP actually saw its overall shipments increase and finally overtook Dell as the leading PC vendor in the U.S.

HP's shipments outside the U.S. increased 2.9 percent, but its shipments to U.S. retailers and consumers was up 12.2 percent. Dell's shipments worldwide declined 16.7 percent worldwide, and 16.2 percent here in the U.S. Though the Texas-based PC maker has done a lot of work to improve its business over the past two years, the first quarter of 2009 was particularly difficult for the company.

"Dell is still largely a commercial company," said Loverde. Less than 30 percent of its sales come from consumer PCs worldwide and the most growth in the market is coming in the consumer category, like Netbooks, and Dell hasn't been as aggressive as the likes of Asus and Acer there, he noted. "But I think we have a combination of Dell tentatively going after this growth segment combined with the challenge of executing with channel partners in a really volatile environment. Obviously the economic crisis is affecting products and consumer demand."

The top five PC makers worldwide stayed basically the same: HP holding 20.5 percent of the market, followed by Dell (13.6 percent), Acer (11.6 percent), Lenovo (7 percent), and Toshiba (5.4 percent), according to IDC's numbers.

In the U.S. only, HP led with a 27.6 percent share, just beating out Dell's 25.3 percent, followed by Acer at 10.5 percent, Apple at 7.6 percent, and Toshiba at 6.6 percent.

To stem continued losses, Sony said Thursday there will be no pay increases for non-managerial employees this year.

Sony doesn't give automatic raises every year based on seniority--unlike many other Japanese companies--but instead awards them based on responsibility and performance, according to Reuters.

It's the first time Sony has ever made such a move, but the company's financial circumstances give it few options. Sony is predicting an operating loss of $2.9 billion for the current financial year ending March 31, the electronics giant's first annual loss in 14 years.

It has already resorted to closing several factories, laying off 16,000 full-time and contract workers, cutting salaries for managers, and trimming bonuses.

Sony is just one of many Japanese electronics companies that have been hurt by the global economic downturn and a stronger-than-expected yen.

Hewlett-Packard is cutting salaries of EDS workers another 10 percent beyond what it first announced in February, ZDNet reported Friday.

Last month, the company announced salary cuts for all employees, ranging from 2.5 percent for nonexempt employees to 20 percent for the CEO, ZDNet said. HP also said it was making changes to employee benefits to save money.

According to a Friday memo obtained by ZDNet: "Unfortunately, we need to take additional action. Specifically, we have decided to make a temporary, additional reduction in base salary affecting EDS business unit employees in the United States and Puerto Rico."

The temporary salary reductions will go into effect next month and end in May, according to the memo, and workers who make less than $40,000 annually are excluded.

Hewlett-Packard acquired EDS in a multibillion-dollar deal last year.