Tablets force reboot of PC industry

2011-07-19 21:34

Santa Clara - The personal computer industry needs a jump-start - and it's counting on a rescue from emerging markets and a late-to-the-party push into tablet computers.

The US and European PC markets have entered a dangerous new phase: Fewer people are buying new PCs because of economic anxiety, market saturation and the rise of seductive new gadgets such as Apple's iPad.

More signs of strain are expected as PC makers and their component suppliers begin to disclose quarterly earnings this week.

Make no mistake: The PC is still the backbone of the digital world, powering e-commerce, social networking and more. It is a fixture in homes and businesses in industrialised countries.

More than one million PCs are sold every day, and the industry is bigger than ever.

But worldwide sales have slowed in recent years. The US and European markets have fared the worst, suffering lately from declines compared with the previous year. Market research firms IDC and Gartner said last week that PC shipments worldwide grew at just over two percent in the second quarter, short of both firms' expectations.

One of the most urgent concerns is that the PC has become ubiquitous in many markets. That has presented the industry with a classic business problem: how to find new ways to sell an established product.

Although it's true that computers need to be upgraded regularly, businesses are only starting to spend money again as the economy slowly recovers. Consumers are updating their machines less often, spending their money instead on the latest hand-held gadgets.

Intense change

Apple CEO Steve Jobs has promoted the changes as a sign we've entered the "post-PC era". Technologists have thrown around that term for a decade in what turned out to be premature predictions, but the characterisation may be coming true now.

"This is a time of intense change," said Sarah Rotman Epps, a Forrester Research analyst who has studied the evolution of consumer technology. "New competition for PC manufacturers makes it just really, really hard to make a profit."

As a result, PC makers are looking to emerging markets to boost sales.

The new strategy was evident at Intel's recent investors' conference, where the company's CEO, Paul Otellini, unveiled a map that identified where PC growth is expected to be strongest in coming years.

The US and Europe were conspicuously not highlighted. Otellini gestured instead toward places such as Brazil, Russia, India, China - the so-called "BRIC" countries - as well as Mexico, Venezuela, the Czech Republic, South Africa and Turkey. All are expected to experience double-digit percentage growth.

The message: The world's leading computer chip-maker and its industry allies have no choice but to launch a marketing attack on foreign shores.

PC sales are decelerating in the US because the same technological advances that fuelled the PC industry's rise - faster processors and lower costs every couple of years - are now benefiting the devices that are usurping it.

Consumers can now use smaller gadgets to do many of the same things they once did with PCs, such as surfing the internet, storing photos and sending e-mail. Apple even boasts that users can edit home movies on an iPad.

A million a day

Indeed, consumers' increasing demand for tablets is a looming threat. Some 50 million tablets are expected to be sold this year, and that could double to as many as 100 million next year, according to various estimates.

Although that's still small compared with sales of 362 million PCs this year, as estimated by IDC, the PC industry has reason to worry because of how quickly the tablet has been able to claimed such a large corner of the market.

Goldman Sachs calls tablets "one of the most disruptive forces in computing in nearly three decades." It predicts that as many as 21 million people will buy tablets instead of laptops this year, jumping to 26.5 million next year.

In recent quarters, corporations have buoyed much of the spending on PCs. That likely continued in the April-June period, but the drag from consumers is expected to be substantial. Intel, which makes 80% of the world's microprocessor chips, issues financial results on Wednesday.

Advanced Micro Devices, its smaller rival, and Microsoft, whose Windows software runs on most of the world's PCs, report on Thursday.

Intel and its PC manufacturing customers are hustling to adapt.

Intel, for example, is working on chips that are less power-hungry so that they're more useful in battery-dependent mobile devices. The company says it has signed deals for some 35 different tablet and tablet-PC hybrids to use its chips.

Intel is pursuing the smartphone market, which until now has been controlled by a competing chip design developed by UK-based ARM Holdings.

Computing the behaviour

Intel, a linchpin in the creation of the PC market, has experimented with putting its chips into non-PC devices before, only to retreat under pressure to focus on its core business. Now investors' interest has flipped, and Intel finds itself under pressure to move faster into smartphone and tablets.

The message isn't lost on the company: The bulk of Otellini's recent sales pitch to investors centred on Intel's efforts to expand into the new technologies.

The consequences for not failing to act have already been severe. AMD's board forced out CEO Dirk Meyer in January, largely because the chip maker lacked a defined mobile strategy. The company is still without a permanent CEO.

The corporate hand-wringing, analysts say, shows the magnitude of the industry's transformation.

"These changes are a fundamental shift in computing behaviour," said Forrester's Epps, noting that computing is now an always-on activity. "The main shift for PC companies that will survive is they need to shift their focus from computers [as] the device to computing [as] the behaviour."

Many PC makers such as Hewlett-Packard, Dell and Lenovo have responded by designing tablets of their own.

None of the new tablets have become a sensation like the iPad, which has sold 20 million units since it went on sale in April 2010. Apple now sells nearly twice as many iPhones as it does Mac computers. 

Device for creating content

The company is on track to make more money from iPads than from Macs by the end of the year.

"If you have a tablet, you don't turn on the PC as much," said Brian White, a Ticonderoga Securities analyst who covers the PC industry. "If you have a tablet, you may not bring your notebook on a trip. It's only going to get stronger, and tablets are going to get better and better.

"This is a legitimate threat to a PC maker. They have to have both, and unfortunately most are behind in the game."

Even if current market projections become a reality, there still would be a wide gulf between the $35bn tablet market and the $250bn PC market. The PC won't become obsolete any time soon because it's still the device of choice for creating the content that consumers increasingly access with their smartphones and tablets.

At least for now, PCs are also needed to store data and to load information onto smaller devices.

How much of the computer market it will be able to command in the future, however, is an open question.

  • OZNOB - 2011-07-19 22:06

    what did they expect the time is being forced on the to be more inventive with the way they package their products and in products that were not previously their core competencies

  • Pickle - 2011-07-19 22:30

    But i like my Pc =( I like being able to upgrade my components myself. I like buying that awesome new Video card. I like modding my case. Meh this is sommer K@K

  • Ross - 2011-07-19 22:52

    Desktop + iPad 2 = Perfect.

  • daniel.zima - 2011-07-20 06:36

    Well I just read this article on my iPad... :P

  • Thinus - 2011-07-20 10:44

    I need a powerful computer to do my work! the only way I will get rid of my pc is if I can get a tablet with a big processor and massive video card! I cant even find the correct specs that I need in Laptops!

  • pages:
  • 1