Dell's Desktop Dilemma

Dell's shuttering of a factory in Texas says more about the company's direction than the headlines suggest.

These are tough times for desktops and Dell seems to know it.

When Dell announced earlier this week that it would close its Austin, Texas, desktop manufacturing facility as part of a sweeping, corporate-wide cost saving venture-the closing will affect about 900 jobs at the plant-it also signaled that the company knows its once profitable desktop market will continue to shrink.

The fact that notebooks, in terms of both revenue and shipments, are outstripping desktops is now an established trend. However, unlike some of its competition, Dell clung to the desktop as a major revenue source, even after companies like Hewlett-Packard, Acer and Lenovo switched their emphasis to manufacturing more laptops.

To read more about the closing of the Austin facility, click here.

Dell has also been willing to continue manufacturing some of its desktops within the United States, while other vendors have sent most of that work overseas.

A recent report from IDC found that, while the overall PC market could grow about 12 percent in 2008, desktops will only experience single-digit growth in terms of shipments. In the United States, desktop shipments are expected to decrease more than 4 percent this year.

Did Dell Miss Notebooks?

Desktops remain an essential part of Dell's business. During its 2008 fiscal year, the company recorded more than $19 billion in revenue from desktop sales, although that was a 9 percent drop from when it reported more than $21 billion in sales during 2006. At the same time, notebook revenue increased by 18 percent.

"We will likely see rising user demand for mobility products in the foreseeable future that will contribute to a slowing demand for desktop PCs as mobility growth is expected to outpace desktop growth at a rate of approximately six-to-one," according to Dell's annual report, which it filed with the U.S. Securities and Exchange Commission on March 31.

Roger Kay, with Endpoint Technologies Associates, is one analyst who believes Dell held onto its old desktop model for too long as other companies jumped to laptops and other mobile devices.