Is the Death of the PC Industry Exaggerated?

Volume trends are at best difficult to resolve when industry segments are at a tipping point, making the demise of the personal computer a much discussed topic with few solid conclusions. Recent numbers show that peak-PC is behind us, but we have to adjust for one-time factors such as new operating systems or different model configurations to get a long-term trend picture.

These short-term effects have impacted the PC market significantly. The fiasco around Windows 8 seriously damaged the PC franchise. First, it removed direct pressure to upgrade PC desktops and mobiles to match the new code. These upgrades would have included touch-screen features as well as better graphics and raw horsepower increases, improving the average unit price by around 20% to 25%.

The OS upgrade failed because the user base baulked at moving from a high quality and stable Windows 7 to a new set of interfaces that better matched the smartphone. Microsoft completely misunderstood the reluctance of their user base to give up on app interfaces and screen operations that had been ingrained for nearly three decades, and the result was the wave of upgrades turned into a delayed ripple.

The belated arrival of Windows 8.1 hasn't helped much.  The user base has realized that replacement isn't a critical business need, which could be translated into “the existing models meet our needs well, so we'll only replace them when they fail”. Windows 8 was seen as apple-polishing and so unnecessary.

Microsoft hasn't helped their case by strongly pushing the browser-based alternative of Office-365. The idea that a cheap, dumb tablet or screen could do the job as well is especially intriguing when control of the app set and security are considered. The cloud office wins all hands down in these categories, though performance still raises questions on occasion.

Hardware-wise, there's only so much that can be offered as new ideas. Two in one laptops are available now, but adding a detachable keyboard to a notebook isn't a huge step forward, and the result is a bit of an Edsel. Sales are growing, but not in any stellar way.

Hybrid disk drives likewise are in the sales doldrums. The idea of getting the best of hard drives might have worked if those pesky flash vendors had kept prices up, but the low-end SSD drives are priced close to hybrid drives, which just aren't particularly attractive anymore.

The outside forces on the PC market are interesting. Tablet sales are sluggish too, but the driving force for this is the realization that most of today's installed base is plenty fast enough to keep the screen painted. In other words, if it works fine, why replace it? The life expectancy of a tablet is probably six years or more, which is 50% longer than the traditional PC cycle.

Mobile phones, with the exception of Apple's product, also are hitting the “it's good enough” barrier. (The iPhone, being a fashion statement more than a communication product, is exempt from reality!) All together, electronics sales are suffering in these sectors, and there appear to be no killer apps to move things back into high gear.

So what does this mean for PC volumes? A few months back, the major pundits predicted a return to growth towards the end of 2015. Most talked about low-single digit numbers, reflecting both the uncertainty in the market and inability to safely predict major flexure points in sales trends, as well as the wave of Windows 10 adoptors.

What we now have doesn't hold out prospects of a PC recovery. IDC's latest report shows PC sales down to 68.5 million units, which is the lowest number since 2009. Lenovo and HP still eked out a 3 percent growth but everyone else took a hit.  Gartner says the PC numbers are the lowest since 2Q 2009.

This isn't a single-quarter issue, either. A good predictor of sales in the following quarter is the volume of desktop and notebook hard drives sold in this quarter. Trendfocus has published numbers that look even bleaker for the PC industry. They show Q1 2015 numbers down 10% to 13% for the PC segment. That will reflect as a major drop in PC sales in 2Q 2015.

Trendfocus cites the end of the XP upgrades (Win-XP to Win 7 really needs a new system, especially as replacement of most of these XP units already were delayed 4 years by the recession) and a decision by most buyers to wait till Windows 10 arrives to consider upgrade.  January and February original design manufacturer (ODM) volumes were weak, and the jump in build rate predicted for March wasn't enough to compensate for this.

Finally, Intel has just announced Q1 2015 results that have their client-computing unit dropping 8.4% in revenue year over year, due to weak PC demand. Again, this reflects forecast for Q2 PC sales. Intel's CEO, Brian Krzanich, is predicting that, even with Windows 10 arriving in the second half of the year, PC sales will drop at “a mid-single digit rate for the year.”

Taken together, these are strong indicators of a market past its peak. The next question is how fast the decline will occur. Microsoft is hedging bets as much as possible, making their apps mobile-ready and boosting their cloud products, even with TV advertising, which may be a cloud first. Dropping “Windows 9” as a designation may help clean the tarnish off the Windows brand, but it is bound to exaggerate the tendency to delay upgrade and to stick with Windows 7.

The major impactor is the deployment of browser-based solutions, especially those, like Office-365 and Google Apps, which follow a SaaS model. The mess over Windows 8 has created an Oklahoma land-grab opportunity for theses SaaS solutions. The lack of a boost from Windows 10 is a telling factor indicating that the fall of the PC will likely steepen abruptly. BYOB will soon replace BYOD as the buzzword, standing for Bring-Your-Own-Browser!

4 comments on “Is the Death of the PC Industry Exaggerated?

  1. docdivakar
    April 21, 2015

    Invoking Sam Clemens, I would say YES, the Death of the PC Industry has been vastly exaggerated! Death of that industry would also mean death of rigorous R&D, a dominant portion of which is still based on PC's. The cloud was supposed to replace all desktops but it hasn't quite turned out to be that way. My $400 laptop over the last three years has way surpassed the expected ROI when compared to the equivalent tier of service on AWS (which exceeds $5K for that period!).

    MP Divakar

  2. JimOReilly
    April 21, 2015

    MP, I checked Office 365 pricing for businesses. Fro $60/year I would get MS Office, 50 GB of email and 1 TB of storage, plus video-conferencing. That looks to be a pretty competitive alternative, coming in at less than 50 percent of your $400 laptop.

  3. docdivakar
    April 21, 2015

    Jim, my laptop is used for much more than emails and MS Office stuff. I do all my simulation and design work, which, when accessed in a hosted mode cost way too much. That was the cost I was referring to.

    I currently run analytics on 100's of Gbs of data on my laptop using R scripts. The workload when hosted on AWS is not at all affordable for me so I find my laptop indispensable. Hence my observations!

    MP Divakar

  4. JimOReilly
    April 21, 2015

    MP, I think your choice of a notebook makes a lot of sense. For many users, PCs are just expensive terminals, with the nrowser to the companies apps being the most important app they run. MS Office is next, and the price of that is $60/yr online as Office 365, so it's a candidate for the online model.

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