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Who Will Hurt Most if PCs Disappear?

Follow the money. In the case of {complink 379|Apple Inc.}, following this old but still very relevant maxim can add significantly to a company's bottom line. Ignoring it can also result in lost sales and a failure to understand the enormous shifts occurring in the electronics world, and the implications for the supply chain.

Because of Apple's runaway success in the consumer electronics market, most players in the electronics industry have been paying even closer attention to the company's strategic moves and (imagined/suspected) product roadmap in recent months. Many would like to secure coveted supplier contracts with the company. Others hope to ride its coattail to success — by manufacturing/supplying accessories for Apple products, for instance. And others are just watching the company for trends.

Those seeking information on trends should pay close attention to a recent report from IHS iSuppli on purchasing patterns in the semiconductor market, where Apple has surged in recent years to become the No. 1 buyer of ICs globally. In a report, IHS iSuppli said Apple, in 2010, became the world's biggest buyer of semiconductors, handily beating former No. 1 Hewlett-Packard by more than $2 billion. Apple spent $17.5 billion purchasing semiconductors alone in 2010, versus $15.2 billion spent by HP, and Samsung Electronics' $14 billion.

The chart below tells more than just the story of Apple breaking another record — something that we are, by now, used to. After all, the company is the world's most valuable high-tech equipment vendor; it's the most profitable, admired, and closely-watched brand. I foresee that it will likely continue to be the most successful company over the next two to five years. The chip numbers reported by iSuppli are important, but not merely because of what Apple has done, which is double its semiconductor purchases, in just one year, from $9.7 billion in 2009.

The Money Trail

Of greater significance, in my opinion, is where the semiconductor parts Apple is buying are being used, and what that tells us about the market direction. Apple has grown exponentially in the consumer electronics market, where it now generates the majority of its annual sales. In the fiscal year ended September 25, 2010, for instance, the company reported total revenue of $65.2 billion, with 27 percent (or $17.5 billion) of that coming from the sale of Macintosh computers. Consumer electronics devices, including the iPod, iPhone, and iPad, accounted for a whopping $38.4 billion, or almost 60 percent, of total revenue. Other software, music-related products, and peripherals made up the balance.

In other words, the majority of components being bought by Apple are going into non-PC products. Also, even if the personal computer market were to disappear today, Apple would still be fine, profitable, and growing. Can any of its rivals, including HP, say the same? Will those companies face headwinds if the position and role of the PC were to erode in coming years? What will happen to their supplier bases as the market evolves? Have they diversified their businesses enough to avoid a slump in revenue and margins if the PC were to lose its long-held central position in the global IT world? ISuppli's comments on this issue are instructive:

    Although Apple and Hewlett-Packard have been rivals in the computer space for many years, an examination of their respective semiconductor expenditures shows that the two companies are fundamentally different.

    Apple is more a wireless devices maker than a computer maker. The company spent approximately 61 percent of its semiconductor budget in 2010 on wireless products such as iPhones and iPads. In contrast, 82 percent of Hewlett-Packard’s 2010 semiconductor spending was dedicated to computer products like desktops, notebooks and servers.

    This worked to Apple's benefit, with the smart phone and tablet markets massively outgrowing the computer segment in 2010. Smart phone shipments in 2010 rose 62 percent, while tablets exploded by more than 900 percent, driven by the introduction of Apple’s iPad. In contrast, global PC shipments grew a relatively weak 14.2 percent in 2010.

ISuppli's figures cover only the semiconductor market, but Apple also buys a bunch of other electronic components that do not fall into this category. I suspect Apple outranks most of its rivals in these segments, giving it considerable leverage with suppliers. The outlook is not comforting at all for companies focused heavily on the PC sector. ISuppli forecasts Apple's semiconductor purchase will rise 28 percent to $22.4 billion in 2011, versus a decline in HP's purchase to $14.8 billion from $15.2 billion in 2010. Most of the companies in iSuppli's Top 10 OEM Semiconductor Buyers' ranking will either post a small rise or decline; not a single one recorded anything more than a 3 percent increase.

The money trail in the electronics industry today is pointing to continued strong growth in the consumer market, and right now, Apple sits atop the pile.

21 comments on “Who Will Hurt Most if PCs Disappear?

  1. Barbara Jorgensen
    June 8, 2011

    On one hand, I see the computer market facing a situation similar to the one it faced in the late 1980s when the mainframe market was threatened by the desktop, and the desktop became the laptop/notebook. Companies that denied the evolution of the computer into the PC were left behind. Computer companies that do not yet offer a tablet will be the casualties. Companies that recognize that tablets are the future–even if they offer a 'me-too' product–stand a chance of survival.

     

  2. Clairvoyant
    June 8, 2011

    No matter how much of the PC desktop market laptops and tablets take over, I always see a PC desktop market existing, even if it shrinks. Desktops still have the most computational power and there will always be a demand for them for high-end gaming, graphic design, 3D modeling software, etc, etc.

  3. Ms. Daisy
    June 8, 2011

    Bolaji:

    From the report you aptly described, Dell and HP appears to be falling behind Apple by wide margin and do not seem able to close the gap because of their heavy investment in PCs. The latter will likely not dissappear but its sale will dwindle to a small size thereby widening the gap between Apple and the rest. The problem is the need for more diversification into things that make daily living more confortable and provides faster access to information. Software that consumers can see as enhancing and of cause, attractive and portable hardware.

  4. DataCrunch
    June 8, 2011

    What I found interesting is the increase in Mac PC sales year over year, which would seem to be logical.  The more iPhones and iPads sold and the more apps that are being developed, the more developers are buying Macs to develop apps for these devices.   Last quarter ending in March 2001, Apple shipped 18.65 million iPhones, more than doubling year-over-year, and 3.76 million Macs, representing 28% year-over-year growth.

  5. SunitaT
    June 9, 2011

    @Clairvoyant,

    I totally agree with you that Desktop still have the most computational power, but its just a matter of time before laptop/notebooks start providing the same computational power. Moreover cloud computing is one more factor which could boost the sales of tablets.

  6. Clairvoyant
    June 9, 2011

    Tirlapur,

    I disagree. Desktops will always have the upper hand in computational power. The issue with laptops and tablets with increasing the processing power is the associated heat dissipation. That is why laptops and tablets will always be behind desktops. It is harder to place processing power into a smaller space while meeting power consumption and heat dissipation requirements.

  7. Jay_Bond
    June 9, 2011

    We all are pretty aware of Apple's dominance in the market currently. It appears they should stay on top for at least the next 5 years baring any major catastrophes. The big question is what is HP and Dell going to do to maintain sales? They don't need to beat Apple at this point, which seems impossible right now. With close to 80% of sales and profits coming from PC's, they face a serious problem. I don't feel that PC's will fully disappear, but if the numbers don't continue to grow, profits will stay the same or drop due to the rising cost of materials. HP and Dell also have to diversify some more, though it's going to be tough to do in an already saturated market.

  8. mfbertozzi
    June 9, 2011

    A fact I've found and is always present as Apple strategy: vendors as HP or Dell have tried to bring in the market PCs cheapest at the time of new launch. Apple attitude is the opposite. First one approach requires processes and wharehouse management very focused on volumes / quantity just to ensure saving, the second one requires more focus on quality just to avoid any components' obsolescence. Maybe it could explain Apple outstanding and rank of other vendors.

  9. Nemos
    June 9, 2011

    Who Will Hurt Most if PCs Disappear?  The companies that have orientation only in pcs and not in wireless devices. However, before we answer this question must be answered this one Can I replace all my activities doing with a PC with a wireless device such as a tablet? .And I believe the answer is  no yet, so the PC market and companies involved are safe, for the moment.

  10. itguyphil
    June 9, 2011

    The major factor is that most “PC users” don't spend hours in front of their computers (but for @ work…) so when they use their REAL PC, it works for their needs. The power users and techno-savvy are the ones that will crave and seek out new devices every few years. So PCs will be around for a while until it is so simple to operate another type of device that a luddite can use it seamlessly, compared to complexiites of future PCs.

  11. Parser
    June 10, 2011

    The latest Apple announcement about iCloud was received on Wall Street with no blessings. Apple stock lost value. This might be beginning of a cycle. In 1990-ties MS was on top and non-beatable against any competition. Recently MS is barely keeping the empire running with almost no headlines.

    Apple and HP do not compete in computers directly but in all other markets. PC market like IBM compatible and Apple with OSX will not disappear. These computers are used to develop applications for iPad and other tablets computers.

     

    HP has Dell and others to worry about. However, it is interesting that Apple and HP and other companies compete for parts in the supply chain. 

  12. mfbertozzi
    June 10, 2011

    I agree Parser, PCs will continue to play as preferred tool and environment for developers. Maybe for users mainly focused on basic features (email, notepad & websurfing) other technologies could replace them, what do you think?

  13. Adeniji Kayode
    June 10, 2011

    MS.Daisy.

    I certainly agree with you on that that PC is still going to be around for long and I feel Innovations can still put PC at the top of the ladder.

  14. Adeniji Kayode
    June 10, 2011

    I agree with you on that too. I believe Pc will still be very much around to do the major “home work” in the area of heavy computation wihile other technologies will make checking of mail and news much  easy and grant access to there anywhere.

  15. Parser
    June 10, 2011

    @mfbertozzi

    Tablets and computers have different abilities. Establishment of tablets like iPad, a quick communicator, may push user to buy better desktop computers and use them for heavy duty computations or sophisticated programs and then log to them remotely by thin light tablets. 

  16. mfbertozzi
    June 10, 2011

    Thanks Parser, very great perspective. My position was wrong; I was still thinking in terms of tablets vs PCs and viceversa, but I understood it is important also to consider the way to conceive their interworking as usage to support each one of us in his job or personal life.

  17. proent
    June 11, 2011

    Computer should remain progress on its core functions, processing power with lesser consumption, lower cost with many available software cater for diversify sectors of application banking, personal, security, weather, information, networking communication, even be like a communications tool like a telephone device or mobile for the case of netbook etc……. Iphone is too little processing power regards as a mobile computer to compare to desktop or notebook computer. They are 2 difference category of usage and applications.

  18. Adeniji Kayode
    June 11, 2011

    I still feel there is so much accociation between PC amd other mobile devices that one way or  the other still have to depend on PC to effectively perform there task.This is also a reason why PC will still be very much around.

  19. Anna Young
    June 12, 2011

    Kayode, I feel that though the sale of PC may have declined as a result of increase in demand for hand held devices such as, smartphones, ipad etc, it does not necessarily replace desk top pcs and will still be around . Like you said, Each device has its place and functionality. Hand held device may be the trend now, but on the long run good old pcs still rules. I agree with you on that note.

  20. Ashu001
    June 15, 2011

    Bolaji,

    The charts supplied by Isuppli are most instructive but miss another important classification.

    Its a very well known fact that in the smartphone/Tablet space today the Biggest Competition is going to be between Apple and Google's Android Platform.

    If you were to stack up on the basis of OS how would those number stack up?

    Regards

    Ashish.

  21. Ashu001
    June 15, 2011

    Nobody disputes that when it comes to hardware manufacturers Apple is the undisputed King of the Hil.

    and its going to take a lot to shake it out of its position.

    Could a Nokia-Microsoft alliance be just the catalyst??

    What about a RIM-HP merger???

    Regards

    Ashish.

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