Unless Hewlett-Packard gets its act together quickly, Lenovo will soon become the world's number one PC maker.
If that happens, it's going to create a moment of national angst.
Headlines would declare: Chinese firm becomes world's top PC maker, displacing U.S., or, more simply, Chinese firm now leads world in PCs.
A Lenovo lead in the PC market would prompt widespread commentary about how the U.S. is losing its place in the world as the tech leader.
Some others in the technology chattering class could try to rationalize it, declaring that the PC is just a commodity and that we've entered the post-PC era.
That would be wrong. We're no more in the post-PC era than we are in the post-car era. The PC is, and will remain, a monumentally important part of getting work done.
Thanks to HP's most recent -- and dismal -- quarter, the U.S. may be only months away from turning over PC leadership to China.
Overall, HP posted an $8.9 billion quarterly loss, much of it due to its IT services division. But the personal systems group's 10% decline in revenue may be as significant as it just may be enough to help get Lenovo to the top of the PC market by year's end.
Declining global PC share
Gartner's report on second quarter PC shipments, released last month, showed HP with 14.9% of the world's PC market, and Lenovo with 14.7%. Most troubling for HP in the Gartner report were the PC growth rates -- HP's share declined by more than 12% while Lenovo's share increased by nearly 15%.
IDC's latest market share numbers give HP a little more breathing room. The Framingham, Mass., research firm listed HP's second quarter worldwide PC share at 15.5%, and Lenovo at 14.9%.
IDC found HP's market share decline similar to the percentage in Gartner's report, but it also found much faster year-to-year growth rate for Lenovo -- just over 25%.
Either way, both research firms had Lenovo close to being the world's top PC maker. "Lenovo has been making great progress around the world," especially in the Asia-Pacific region, said Crawford Del Prete, an analyst at IDC. A big consumer push is helping Lenovo as well.
The decline in the PC business isn't a new problem for HP.
Last year, former CEO Leo Apotheker even floated the idea of spinning off the PC division -- an idea, along with some other issues such as the TouchPad disaster, that led to his ouster.
New CEO Meg Whitman decided to maintain the PC unit, reasoning that it's too important to the HP brand and supply chain to abandon.
Michael Dell had reached a similar conclusion about his own company, saying that he expected the number of PCs in the world to grow from 1.5 billion to 2 billion in not too many years it would be crazy to sell off the division.
But that was last year.
Spin-off talk on Wall Street
Thanks to the continuing drag of the respective PC businesses on HP and Dell, the idea of spinning off the units is getting new traction on Wall Street.
For instance, analysts at USB and Topeka Capital Markets are suggesting such moves, according to recent reports in the Wall Street Journal and The Street.
HP said another reason it kept the PC business is to help it extend sales of servers and services to businesses. Few companies in the world come close to offering HP's range of equipment and integration capabilities.
Whitman's position on the PC division notwithstanding, the idea of a spin off won't go away unless HP can turn it around -- and find a way to offer tablets and other mobile technologies used by enterprises.
Potential buyers
Lenovo bought IBM's PC division in 2005 and instantly became the world's third largest PC vendor. It would be a likely candidate to buy spun off HP or Dell PC divisions as.
Lenovo is completely focused on the mobile and PC markets. It has clear advantage in the massive Chinese market while proving itself in other markets as well. It uses the word "Attack," to describe its execution strategy to investors.
If Lenovo didn't buy the HP and/or Dell U.S. PC divisions, then some other overseas company may.
A U.S. buyer of the units seems unlikely.
Oracle is a doubtful candidate -- it's still working to consume Sun Microsystems. Microsoft wouldn't deter threats to its operating system by making PCs. Cisco has no talent for the consumer market, something it proved with the Flip camcorders.
If Lenovo or another China-based firm buys thither or both of the U.S. PC operations, it could pose challenges to U.S. technology leadership, some experts say.
"The problem is that if a Chinese company bought them, the odds are quite high that they would be backed either directly or indirectly by the [Chinese] government," said Robert Atkinson, who heads the Information Technology and Innovation Foundation in Washington.
Atkinson, who has testified before Congress on global competition issues, will release in two weeks Innovation Economics: The Race for Global Advantage (Yale University Press), a book written with Stephen Ezell, .
Atkinson contends "that the future Chinese strategy will rely on an aggressive foreign acquisition strategy, backed by the deep pockets of the Chinese government designed to gain advantage in key technology areas."
A spin-off of the HP or Dell PC units could make short-term sense from a Wall Street perspective, "but would have long term negative implications for the US," Atkinson said.
"At some point you draw a line in the sand and say no more retreat, we stand and fight here. If PCs go, what's next? Semiconductors? Other components? At some point the United States has to say what are we not willing to lose in foreign competition," he said.
For the record, Lenovo says it has a dual headquarters in Beijing and Morrisville, North Carolina, but it is ostensibly a China-based firm.
For now, Dell and HP seem committed to keeping their PC divisions.
The current troubles are still being blamed on strong "headwinds" ranging from continuing trouble in the global economy to the Apple's ongoing tablet dominance.
But we'll see what the next quarter brings and what Wall Street has to say about it.
And if HP loses its top position, an even larger conversation may begin in America.
