Is the PC industry on a fast lane to extinction?

Is the PC industry on a fast lane to extinction?

Number of tech giants report steep earnings declines showing dwindling PC sales

In what seems like an avalanche of bad earnings results, a number of technology heavyweights reported steep earnings declines in the last few days, confirming earlier forecasts for slumping PC sales.

Advanced Micro Devices said it will lay off 15 per cent of its workforce and swung to a net loss of $US157 million in its latest quarter from a profit of $US97 million in the year-ago quarter; Intel’s profit fell to $US2.97 billion from $US3.47 billion; Microsoft’s quarterly earnings fell 22 per cent; IBM’s revenue was down five per cent to $US24.7 billion made worse by a double digit decline in sales in Australia.

While the debate rages on about whether personal computers are on a death spiral, one thing’s certain: PC sales are slowing down – rapidly.

The decline in PC sales affects everyone in the PC industry including the channel – distributors, system builders, resellers and retailers – but perhaps the most significantly-affected are the supply-side vendors - PC and component manufacturers, according to Amy Cheah, a market analyst with IDC.

Both Gartner and IDC last month reported data for declining PC sales. According to Gartner, worldwide PC shipments fell 8.3 percent and IDC reported a fall of 8.6 per cent in PC shipments.

According to analysts, a confluence of factors seem to be behind this downward trend, not least of which is the explosion in the use of tablets and smartphones, putting more pressure on PC sales. But perhaps a more immediate headwind is the slowdown and delays in IT purchasing decisions and lengthier technology refresh cycles, especially in anticipation for a number of technology releases such as the launch of Microsoft’s Windows 8.

Exacerbating these factors is the continuing weakness in the global economy and generally more cautious attitude towards spending, the analysts said.

The whole IT industry is going through a significant shift and hurting because of the continuing economic problems in Europe along with a slowdown in emerging markets such as China, said Gartner principal analyst, Lillian Tay.

“We don’t see any major pick up in the next few quarters.

“There were always hopes in emerging markets but they are being affected as well. Consumers are now more cautious and there is a pull back in demand. Unless there is a “critical” need, many consumers are putting off decisions to buy PCs at the moment, she added.

“That excitement of the next high performance device is no longer there,” Tay said, adding that users are now more keen on what types of applications would be better for productivity. “PCs are part of whole device portfolio now. There is no one personal device for one person. It’s an array of devices, giving more alternatives to PCs.”

Technology purchasing is facing delays in part because of the anticipation around the Windows 8 launch, which could potentially help the revival in PC use as many companies make large-scale transitions.

In case of enterprises, which have traditionally been big buyers of PCs for their use in servers and storage, many have begun outsourcing their on-premise servers to the growing breed of Cloud providers or Infrastructure-as-a-Service providers, potentially slowing down PC demand further, warned Rodney Gedda, an analyst with Telsyte.

“It’s a combination of emerging Cloud services, which may impact server demand and the competing forces against PCs from mobile options,” Gedda claimed.

Overall, for the Australian market, consumers make up almost half of the PC market while commercial buyers such as the government, education, enterprise and SMB segments comprise the rest, Cheah noted.

“The Australian PC market has been trending downwards the past few quarters but the fall here was exacerbated this quarter due to anticipation of Windows 8 launch. PC vendors and channels were cautious in stocking up, focusing instead on clearing out Windows 7 PCs to make room for new Windows 8 PCs,” Cheah said.

“To a certain extent, the ongoing aggressive price discounting rampant for the past few years have trained consumers to wait for the big sale before purchasing.

“Online has also become an increasingly important channel for consumers to gather product and pricing information, allowing them to make better comparisons and more informed purchasing decisions,” she said.

So what should these PC companies do to stay in business? Almost all analysts agreed on the message of innovation, or diversifying away from being purely PC-focused.

Indeed, many are already headed in that direction: IBM has said it is exiting from the PC Business, Gedda noted. HP has said it will be paring down its PC business and refocusing on tablets; Lenovo is investing heavily in tablets and mobile while also looking at more hybrid notebook and PC devices.

Tay expects the PCs sector to see a slight upturn in PC sales next year on the back of the excitement around Windows 8.

So is the PC industry on a fast lane to extinction?

It’s unlikely given the need for PCs and entrenched user habits, according to these analysts.

“There has been and will still be a need for PCs. Just as there is still a need for desktops despite the emergence of notebooks, so will there still be a need for notebooks despite the emergence of tablets and smartphones,” Cheah said. “The form factor and how we define a PC may change, but personal computing will continue to be a fundamental part of our everyday life.”

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