Aug 27, 2012 02:52 PM EDT
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iPhone Success Causing Economic Downfall For Rivaling Companies Dell And HP

By Donovan Jackson
iPhone
(Photo : Reuters)

As Apple's stock increases on a daily basis, the stock of its competitors like HP and Dell, continues to plummet.

Apple's unveling of the iPhone in 2007 has changed the way people around the world communicate. Touch screen technology has proven to be very profitable for investors as well as for the companies who have begun to advance the technology for their own products profit.

However, for HP who has come off a five-year stretch of miscalculations, is in such desperate need of a reboot that many investors have written off its chances of a comeback.

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Since Apple Inc. shifted the direction of computing with the release of the iPhone in June 2007, HP's market value has plunged by 60 percent to $35 billion. During that time, HP has spent more than $40 billion on dozens of acquisitions that have largely turned out to be duds so far.

"Just think of all the value that they have destroyed," ISI Group analyst Brian Marshall said. "It has been a case of just horrible management."

HP hired Meg Whitman 11 months ago in the latest effort to salvage what remains of one of the most hallowed names in Silicon Valley 73 years after its start in a Palo Alto, Calif., garage.

The latest reminder of HP's ineptitude came last week when the company reported an $8.9 billion quarterly loss, the largest in the company's history. Most of the loss stemmed from an accounting charge taken to acknowledge that HP paid far too much when it bought technology consultant Electronic Data Systems for $13 billion in 2008.

Like HP, Dell missed the trends that have turned selling PCs into one of technology's least profitable and slowest growing niches. As a result, Dell's market value has also plummeted by 60 percent, to about $20 billion, since the iPhone's release.

That means the combined market value of HP and Dell -- the two largest PC makers in the U.S. -- is less than the $63 billion in revenue Apple got from iPhones and various accessories during just the past nine months.

The hand-held, touch-based computing revolution unleashed by the iPhone and Apple's 2010 introduction of the iPad isn't the only challenge facing HP and Dell.

They are also scrambling to catch up in two other rapidly growing fields -- "cloud computing" and "Big Data."

Both HP and Dell want a piece of the action because cloud computing and Big Data boast higher margins and growth opportunities than the PC business.

As PC sales languish, both HP and Dell are likely to spend more on cloud computing, data storage and technology consulting.

Although those look like prudent bets now, HP and Dell probably should be spending more money trying to develop products and services that turn into "the next new thing" in three or four years, said Erik Gordon, a University of Michigan law and business professor who has been tracking the troubles of both companies.

"It's like they are both standing on the dock watching boats that have already sailed," Gordon said. "They are going to have to swim very fast just to have chance to climb back on one of the boats."

As Apple continues to dominate the tech market, rival companies will have to rethink the way that they approach their business model.

 

 

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