The End of the PC Era?

The CEO of chip giant Intel (Nasdaq: INTC), Paul Otellini, recently stated that “there's a golden age ahead of us [Intel]”. He made this statement based on his belief that the age of “cannibalization” of PCs – consumers choosing tablets over laptops – would be replaced by age of “reverse cannibalization” as new Windows 8 laptops come out with touchscreens later this year. Windows is, of course, the new operating system soon to be brought out by Microsoft (Nasdaq: MSFT).

Intel and Microsoft are not the only companies hoping Windows 8 is a runaway success. Others in the PC world need it to be a success in order to turn their fortunes around.

Take Dell Computer (Nasdaq: DELL) for one. Its stock recently fell by a fifth in one day on the back of poor results. According to its chief financial officer, Brian Gladden, the PC market has turned into a low-growth ghetto. And this past week Hewlett Packard (NYSE: HPQ) took a $1.2 billion write-off on its decade-old acquisition, Compaq Computer. Its CEO, Meg Whitman came right out and said “We are betting heavily on Windows 8”.

These companies are facing a steep uphill climb against the competition - smartphones and tablet computers. Smartphone sales exceeded PC sales for the first time ever last year, with 427 million sold versus 353 million PCs sold. According to technology research firm Gartner, smartphone sales will be twice as big by 2013. Tablets, led by the iPad from Apple (Nasdaq: AAPL), looks like the next device which will capture a global mass market, with some in the industry predicting sales could rival those of PCs within three years.

As a whole, the number of “smart” devices sold annually will double between now and 2016, reaching 1.84 billion according to research firm IDC. In that period, traditional PCs are forecast to shrink from 36 percent to 25 percent of the total number of smartphones, tablets and PCs. Hardly a golden age.

Part of the decline is due to shifting consumer tastes. The emergence of web-based services has made software applications less relevant to consumers. For example, music lovers today are much more likely to turn to streaming service such as the iCloud where there favorite tunes are stored on Apple servers. The same can be said with regard to personal data too.

Intel and others are banking on consumer acceptance of hybrid PCs (which Apple thinks will never be viable) thanks to Windows 8. But these type of devices failed miserably in the past. Take Dell's Inspiron Duo which was launched to much hype in 2010. Consumers thought it was too heavy, the screen and battery life were poor and it did not even come close to the touchscreen experience of the iPad.

Windows 8, however, does seem to be the best offering from Microsoft since Windows 95. It will have an user interface, called Metro Style, that is based on colored tiles operated by touch and which is currently being used on Windows phones. Microsoft is also using a programming model that enables developers to create apps easily and computing architecture and operating system that will run tablets. The architecture is required for devices that run low-powered chips (which expands battery life) designed by the UK's Arm Holdings.

Microsoft's Windows 8 should give PC companies an opening to pull customers back into the PC universe. But that window may close rather quickly, leaving others like Samsung and Apple to further gain market share.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.