Is The P.C. Era Waning?

aakanksha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

PC sales sank in the fourth quarter of 2012 due to increased competition from smartphones and tablet devices. The slumping sales of PC's in the fourth quarter is evidence of a structural shift in the PC market rather than simply a weak economy. Shipments totaled some 90.3 million units -- a 4.9 percent decline from the fourth quarter a year earlier. In the U.S. market, PC shipments fell 2.1 percent from the year prior to 17.5 million units, while PC shipments in Europe, the Middle East, and Africa fell by 9.6 percent. The decline was attributable largely to consumers purchasing tablets and smartphones rather than replacing older computers, which could suggest that consumers are starting to see the tablet as suitable for content creation as well as consumption. This transformation was triggered by the availability of compelling low-cost tablets in 2012, and will continue until the installed base of PC's declines to accommodate tablets as the primary consumption device.

Among PC makers, Hewlett Packard (NYSE: HPQ) regained the top position in the worldwide PC shipments in the fourth quarter of 2012, depicted in the chart below. However the company’s shipments did not grow much compared to a year ago. Analysts said HP most likely gave up a certain margin level to gain market shares. HP was successful in managing large retail deals, targeting Microsoft’s Windows 8 launch and holiday sales in selected regions.

Even though Dell was the second highest in terms of PC shipments, Lenovo took the number two position in terms of the growth rate, earning a growth of 9.7% compared to Dell’s -16.5%.  Lenovo’s growth exceeded regional growth rates in North America, the EMEA region, and Asia/Pacific, but lower than the industry average in Latin America and Japan. In North America, Lenovo performed well by expanding in the retail market and protecting its professional market share.

Source: Gartner (Depicts US shipments only)

Broken Windows

It wasn't supposed to be this way. Microsoft (NASDAQ: MSFT) had pegged its strategy on its new Windows 8 OS, which would mimic the tablet experience on a laptop and potentially even a desktop. The lack of Windows 8 adoption suggests that even while most users continue to use conventional PC's, they're not upgrading them. Windows 8 had a nasty problem--most of the hardware that was to have launched with 8 was delayed because of a severe shortage of touchscreen displays. The fact is that without touch-enablement, Windows 8 is not a compelling product. Not many PC's had fully taken advantage of Windows 8 yet. There was lots of confusion around Windows 8 from the vendor perspective; thus, consumers did not get the right messaging. The industry needs to develop more intuitive touch-based PCs in order to take advantage of Windows 8 and have better communication with consumers

However, the window isn't closed for Windows 8, and in the long run the OS could gain steam and traction. Still, it hasn't been the breakaway hit that Microsoft no doubt wanted it to be.

Mac’s declining sales

Apple’s (NASDAQ: AAPL) long-standing run of consistently out-growing the PC industry as a whole also came to an end. It's a streak that's been going on for years; even this past October 2012, when Apple reported a mere 1 percent growth in Mac sales, it still trounced the 8.6 percent decline IDC reported for the PC industry as a whole.

The newest numbers show a 21.2 percent drop in Mac sales from the same time last year, while IDC's latest figures have the PC industry shrinking just 6.4 percent in comparison .

A big chunk of the decrease was due to the iMac; sales for that product line alone shrank by some 700,000 units. Apple’s CEO Tim Cook admitted that the market for PCs is not as strong as it once was — and that the company's own iPad is likely eating into some PC sales. (In contrast to the Mac, Apple sold 22.9 million iPads — up from 15.4 million the same quarter last year — and that's with the company not being able to meet demand on the iPad mini).

"There is cannibalization of the Mac by the iPad," he said, "but we think there's more cannibalization of Windows PCs by the iPad — we love that trend."

The latest results, however, suggests that the iPad's impact on computer sales may have very well become an equal-opportunity offender. Computer owners that once flocked to the Mac could simply be bypassing traditional computers altogether when looking for more accessible devices.

"I see cannibalization as a huge opportunity for us," he said. "On the iPad we have the mother of all opportunities here — the Windows market is much, much larger than the Mac market." However, Cook also seemed to think that the iPad could somehow drive new Mac sales while also eating away at them. "When someone buys their first Apple product," he said, "they end up buying another one." It's the so-called "halo effect" that got iPod owners into Apple Stores and buying Macs in the first place, and Cook thinks the iPad will eventually bring about the same phenomenon.

Conclusion

The mixed messages by Apple's CEO are indicative of a company that is trying to assert itself while simultaneously reacting to the post-PC landscape it helped create. It's the kind of challenging terrain that has seen established software companies turn to hardware, online service providers flirt with designing devices, and where Apple's expansion into different product categories may end up being the greatest threat to the Mac of all. Meanwhile, in a report, Fitch Ratings warned that revenues in the US technology sector will decline modestly this year, reflecting a confluence of factors ranging from the US debt ceiling, Europe’s debt crisis, and China’s government changes. “2013 marks an important year for the industry with the launch of several high-profile products, such as Windows 8, Ultrabooks, and hybrid PC-tablets,” says Fitch. “This is especially critical for companies like Microsoft, Dell, HP, and Intel, all of which have been limited participants in faster growing products over the last two years.”

As iPads, iPhones, smartphones continue to dominate the tech market and erode the market share of the PC’s, 2013 could be the beginning of the end for PCs!


Aakanksha19 has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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