Worse, it seems the biggest mistake both companies have made was thinking they can compete in mobile instead of maintaining their focus of turning into the mold of International Business Machines. It's hard to imagine if another company deserves more credit for having anticipated correctly the demise of the PC industry. IBM was smarter than many critics care to admit.
However, for HP and Dell, it's not too late to shed the woeful hardware business and transform themselves into a complete enterprise services company. After all, IBM proved that it can be done. The company's most recent earnings report prove what is possible when great vision and sound execution comes together.
Strength in Numbers
Though IBM saw revenue declined by 3 percent and missing analysts' estimates, on a constant currency basis, revenue actually rose by 1 percent year-over-year and 5 percent sequentially. Both HP and Dell could appreciate that IBM's hardware revenue fell by 7 percent. This is an area in which both have shown considerable signs of struggle.
However, IBM was able to offset this weakness with strength in other areas of its business. For instance, both its service and software segments grew by 1 percent and 4 percent, respectively. Even more remarkable was that IBM was able to post better than one point in gross margin improvement while growing its operating income by almost 1 percent.
Overall, IBM's numbers were good but not great. However, as noted, it shows just how well its model can perform in tough economic climates. Imagine what these numbers might have been if corporate IT spending was in a full mode of recovery.
HP and Dell should take a lesson.
Clearly there continues to be fundamental challenges at both HP and Dell, and none are quick fixes. Both companies must focus on finding new ways to grow their high-margin segments, which include networking and storage.
I just don't think they are putting enough resources in these areas. As a consequence, they are losing share to Cisco Systems and EMC.
Better still, they need to try to become IBM and figure out how to reshape their businesses to strategically leverage their portfolio of offerings to include services and software. Outside of servers, they need to leave hardware alone — this is exactly where IBM was a decade ago.
It turned out IBM made the right decision. HP and Dell must do the same.
—By TheStreeet.com Contributor Richard Saintvilus
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At the time of publication, Richard Saintvilus had a position in Apple stock.