Year of the Phablets

The new is chewing up the old. A set of hybrid products analysts call "Phablets" are eating deep into the shipment of traditional PCs, and causing grief for PC vendors with no strong offerings in the segment, according to industry consultants and research firms.

Phablets, which DisplaySearch's Richard Shim defines in a recent report as a "phone and tablet combination," helped drive PC shipment into negative growth in the fourth quarter of 2012, as well as for the entire year, according to a report from IDC. The research firm confirmed this is but one of the challenges PC vendors are facing. It said further:

The lackluster fourth quarter results were not entirely surprising given the spate of challenges the PC market faced over the course of 2012. IDC had expected the second half of 2012 to be difficult. Consumers as well as PC vendors and distribution channels continued to be diverted from PC sales by ongoing demand for tablets and smartphones. In addition, questions about the use of touch on Windows PCs vs. tablets slowed commercial spending on PCs.

This development shouldn't come as a surprise to anyone. Aside from the improvement in processing power and storage, the PC had not evolved beyond its traditional functions until recently. Even now, whatever advancements we are seeing in the PC segment (touch screen technology in Microsoft's Windows 8, for example) are being copied from the smartphone and tablet PC market.

For years, PC vendors were satisfied with renewal purchases in saturated Western countries, and new users in developing economies. That strategy hit the rocks when non-traditional PC makers began rolling out smartphones and tablets that offer many of the same functionalities as computers.

This development, coupled with the lightness and ultra-mobility of "Phablets," is frightening to PC vendors -- rightly, in my opinion. Smartphones initially offered users the ability to get online, but the screens were often too limited for serious web surfing. That has changed with the advent of larger screen smartphones, compact tablets, and larger varieties.

The trend has even extended into the enterprise space, with many companies buying tablets for workers in place of notebook computers. Nowadays, it's no longer surprising to attend conferences where most participants show up with tablet PCs rather than laptops. I've even been at events where people use tablets to film and take pictures. They look funny carrying around 10.1-inch equipment and using it to film or take pictures, but I bet the tablets get the jobs done.

Let me repeat that: Tablets get the job done. This is the crux of the matter and the main challenge facing PC vendors. In any economic segment, the emergence of a new product class that has the same functionalities as an existing device at a lower price or other distinct advantages, can immediately result in significant market share losses by sellers of the currently-dominant product. PC sellers didn't anticipate this development, and it shows in their performance.

IDC said global PC shipment fell 3.2 percent in 2012 to 352.42 million, compared to 363.89 million in 2011. Of the top 5 vendors, only Lenovo and Asus recorded an increase in sales, of 19.2 percent and 17 percent, respectively. Hewlett-Packard, which retains its No. 1 position in the market, experienced a 7 percent decline in unit shipments; No. 3 vendor Dell tumbled 13 percent, and Acer sank 10 percent.

None of these companies is a major player in the phablet segment. They should expect more turbulence and shipment declines in 2013, unless they develop a killer application/device that knocks phablets from their current perch atop the food chain. It won't happen in 2013.