The Savior of Desktops and TVs?

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

Nobody uses desktop computers anymore, right? Those huge desktop towers and their separate monitors, occupying a significant portion of your desk space, with cables cluttering up everything; who wants to deal with any of that? I sure don’t and nobody else I know does.

That’s not to say that people aren’t buying desktops. Of the 457.2 million PCs expected to be sold this year, 132.2 million of them will be desktops. And that 132.2 million is larger than last year’s desktop sales. It is microscopic growth, 0.2% (or a little under 300,000 additional worldwide sales), but it is still technically growth. So people are still buying desktops; but with that anemic growth, the future of this product does not look bright. That is, except for a specific type of desktop computer that is growing at a tremendous pace: the All-in-One (AIO) PC.

AIOs are the New Black

Similar to the cyclical nature of clothing fashion (old trends becoming new again) the All-in-One desktops are in the beginning stages of a revival. Once a popular computing option, they began to fall by the wayside as now-traditional desktop tower PCs began to rise. But as desktop’s own popularity began to fall, it became time for AIOs second act, helped especially by the popularity of Apple’s (NASDAQ: AAPL) current line of AIO computers, the iMac.

As mentioned previously, desktop PCs as a category are expected to grow a tiny 0.2% this year. All-in-One desktops specifically, however, are expected to grow an outstanding 20% over last year (16.4 million in AIO sales). And this year will not be an outlier for AIOs, as the computer style is expected to increase by a compounded annual growth rate of 13%, hitting 24.8 million annual sales by 2016. While that 16.4 million this year and 24.8 million in 2016 is a small slice of the overall computer market, it is still tremendous growth in an otherwise stagnant, low-growth industry. And growth should not be ignored.

Don’t Call it a Comeback

They’ve been here for years. Like most fashion trends, they never truly leave us. Despite their decline in popularity in the early 90s, the All-in-Ones have always been around. My first hand-me-down computer was a tiny Apple Macintosh Classic AIO. Ever since then, Apple has been (seemingly single-handedly) keeping the All-in-One concept alive; today with their very popular iMac line of desktop computers. Unsurprisingly, Apple and the iMacs own the AIO desktop space, with iMacs making up 28% of all worldwide AIO sales. The remainder of the AIO leaders are some of the usual suspects: Lenovo, Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ) and Sony (NYSE: SNE).

While AIO sales are finding renewed popularity here in the states, AIOs are finding first-time popularity abroad in emerging market countries. AIOs are becoming an increasingly popular option in China, where 90% of Lenovo’s desktop sales in China are AIO PCs. Sales in Latin America, Russia and India are also seeing high demand for AIOs. What is making these AIOs are popular again?

Not Your Father’s Desktop

If AIOs continue with their projected growth, we may have to rethink the term ‘desktop’ as an accurate product description. Although once confined to the work cubical or home office like all desktop computers, that is no longer the case for today’s AIO PCs. Today, AIOs can be found in kitchens on counter tops, bedrooms on night stands or mounted on a wall.

AIOs have come a long way from the hand-me-down Macintosh Classic I received from my parents as a kid. Technology advancements have made the All-in-One computer’s display thinner, the internal components small and everything else about the computer just more convenience to stick in locations you would normally never find a desktop.

A Cord Cutter’s Dream

And with those advancements, the AIOs are becoming a practical alternative to traditional TV ownership. As the cord cutter movement continues (canceling your cable TV service and viewing all of your content over the internet), I believe sales of the All-in-Ones will benefit greatly from this transition. Despite Apple’s current dominance in this space, it is the PC manufacturers who are leading the charge in creating a possible replacement to the traditional TV.

Many AIO desktop models, such as Hewlett-Packard’s Omni 27, feature a TV tuner and a decently-sized 27” 1080p display, perfectly suitable for everyday TV viewing. Other models, like Sony’s VAIO line of AIOs, go all out with a 3D glasses-free 1080p LED touchscreen display, a BRAVIA TV tuner, HDMI video-in for connecting other devices such as game consoles, all of which is easily wall mountable.

Savior of Two Products?

Not only are these AIOs the knights in shining armor of the desktop space, but they could also very well be the saviors that TV manufacturers have been searching for in the ultra-competitive TV space, where decent margins are difficult to come by. TV manufacturers placed their bets on 3D being a driver of new TV sales, which proved to be a spectacular miscalculation on their part. People are not interested in replacing a perfectly good TV with a new, but largely-similar TV. People do replace their computers though. In fact, they replace them all the time, in a fairly predictable pattern that coincides with major processor generation updates and other technological jumps.

Some of these AIOs (particularly the Sony VAIO line) are basically TVs with the phrase ‘Intel Inside’ stamped on it. They are the smartest ‘Smart TVs’ on the market—genius TVs, if you will. They give users all the benefits of an internet-connected Smart TV, but with none of the restrictions or limitations. These AIOs allow for full access to the internet, rather than the limited, bifurcated internet experience offered by TV manufacturers and app providers.

It would not take much for this to happen. Bigger screen, cheaper prices and some clever marketing and AIOs could easily become a hybrid of the desktop-TV product. And with that, it would bring with it the living room penetration of a TV (something that desktops lack) with the typical upgrade cycle of a computer (something that TVs lack).

Saving two struggling consumer electronics spaces with one product? That would be quite a feat. But if AIO manufacturers play their cards right, that could very well be the result of this little AIO product revival. The only problem is that I’m not sure that the computer manufacturers themselves quite know what they have yet. Only time will tell.

WhichStocksWork has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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