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Hardware is still used massively. The difference lies mainly in the sequencer. Before it was mainly dedicated hardware, now with computers sequencing gets more versatile.
But that doesn't mean that everything is done with computers. Very few pro studios/producers use an all software package nowadays. Most of the time it's a main computer for sequencing and recording, but the actual sound generators are still hardware (and sometimes some softsynths/samplers are added).
Much is still done with hardware synths, samplers and a keyboard, it's just the thing that controls all that is replaced by a computer.
Why not all software? Software sound generators have only gotten public attention the last couple of years because computers are getting powerful enough. Don't forget a synth like the Virus C, to name one of the most famous, is stuffed with dedicated DSP's that are only doing what they are designed for.
A computer has several more levels : it has to control more peripherals, keep the OS running at all time, ...
If you have to make a very complicated sound, a hardware synth will do it without a hassle. If you do it with a computer, you'll bring it to its knees pretty quick.
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