Is There a Lasting Future

For PCs in Business?

Are we presently in the midst of witnessing the slow but assured demise of the personal computer and an inevitable permanent blue screen – or is the market merely going through an adjustment whereby PCs will assume a reduced, albeit continuously important, communications hardware vehicle with which to do business?

While the decline in sales of the PC has been quite evident for home users for quite some time, there are also signs it’s weakening in the business sector as well, and that of course has computer makers worried with a significant percentage of PCs being sold to the business sector. But will the recent decline continue on a steady pace as it has for the several years, or will it level off at some point?

Two well-known industry leading analytical companies each say the recent numbers are definitely cause for concern – although nobody seems willing to sound the death knell just yet, and with good cause. Gartner and IDC both follow the PC market closely and have sent out the warning signal. But a warning signal about a slowdown and outright impending doom are two different matters, which quite often get confused.

Early last month IDC noted that first quarter shipments of PCs were down 14 per cent overall compared to the same time period in 2012. The drastic decline marked the largest quarterly plunge since the company began tracking shipments of PCs 19 years ago.

The knee-jerk reaction from some companies may be to abandon upgrades of PC hardware and instead look at connecting staff onto tablets or even smartphones. Such a drastic change could create more problems than it solves. Additionally, the decline is largely indicative of personal home use as opposed to PCs used for business.

Gartner principal analyst Mikako Kitagawa has previously addressed this very matter.

“Unlike the consumer PC segment, the professional PC market, which accounts for about half of overall PC shipments, has seen growth, driven by continuing PC refreshes,” she says.

Sales of personal computers to businesses accounts for just over 50 per cent of all shipments worldwide. So, while it’s clear home use is on the fast decline, there remains a very large and lucrative market for manufacturers to chase on the enterprise side.

Another vital point to keep in mind is that the needs and requirements of a business vary greatly from that of someone using a computing device for their own pleasure in the comforts of their home. Often mobile and compact are more desirable features, but in cases such as business, where employees largely work from static locations, the fact the computing device is stationary isn’t a problem – especially if it provides added benefits, such as the traditional use of a large, easy to use keyboard and a high-resolution flat-screen monitor sitting on the desktop.

Furthermore, large PC manufacturers such as Dell have already indicated they will be making greater efforts to integrate new platforms which are now found on tablets.

The PC is essentially fighting two major battles. The first is technical mobility, now made possible through the use of tablets and smartphones. These devices carry enough power to deliver everything many businesspeople require in a portable computer format. The second battle is the generational divide. Anyone under the age of 25 has grown up with tablets and smartphones and are a lot less likely to want to have a static PC workstation sitting on their desk.

IDC expected shipments of PCs to continue to decrease over the past year, but the rate at which the market fell out surprised them.

“Although the reduction in shipments was not a surprise, the magnitude of the contraction is both surprising and worrisome,” IDC research director David Daoud says in a release to the media. “The industry is going through a critical crossroads, and strategic choices will have to be made as to how to compete with the proliferation of alternative devices.”

Lenovo Group out of China fared the best with sales holding steady. The same can’t be said for Hewlett-Packard. The world’s largest maker of PCs was shaken by a 24 per cent decline in shipments in the first quarter compared with the same time last year.

Is it Just Smartphones & Tablets?

There’s no doubt that the aforementioned portable hardware devices are largely responsible for eating into the market share of the personal computer, but some analysts believe there are other factors at play.

At the top of the list is Windows 8, the new Microsoft operating system that provides users a new way to interact with their computers. Microsoft may have inadvertently sped up the decline of traditional computer sales with a number of touch options on the new OS. It’s more than a bit ironic given that previous Windows operating systems had almost singlehandedly built the PC market based on their technologies since the mid 1990s.

It made perfect sense for Microsoft to enter into the technology development area of catering to tablet experiences, but in so doing may have pushed more people to the new touch method, or others who will opt for sticking with Windows 7.

“Unfortunately it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market,” IDC reveals in its media release. “While some consumers appreciate the new form factors and touch capabilities, the radical changes to the user interface, removal of the familiar Start button and the costs associated with touch have made PCs a less attractive alternative to dedicated tablets and other competitive devices.”

As the world’s largest software company struggles with markedly declining personal computer sales and a lukewarm reception for Windows 8, it was recently announced that CFO Peter Klein will be leaving Microsoft at the end of June after more than three years in the position. Klein, an 11-year employee with the company, is the latest top-level executive to leave the Redmond, Wash. based firm following Windows boss Steven Sinofsky who exited in November. Now focus is centring on CEO Steve Ballmer’s performance and whether he’s the right person to lead the company given that Microsoft shares have remained essentially flat for the past decade.

By the Numbers

PC shipments worldwide in the first quarter of this year totalled 76.3 million units, equating to a drop of 14 per cent compared to the same quarter last year – almost double the projected decline of 7.5 per cent. The low end of the market is seeing losses due to companies taking netbooks off the market in favour of pushing cheaper Android-powered tablets, while the high price of Windows 8-based systems with touch-screen capabilities – a requirement if the user interface is to function properly, is viewed as somewhat of a turnoff for fiscally prudent buyers who are wary of forking out more money for yet another upgrade.

IDC is clear about where it is placing the blame for what is the worst quarter in the PC industry for years.

“At this point, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market,” states Bob O’Donnell, IDC VP. “While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button, and the costs associated with touch have made PCs a less attractive alternative to dedicated tablets and other competitive devices. Microsoft will have to make some very tough decisions moving forward if it wants to help reinvigorate the PC market.”

Meanwhile, the world’s largest chipmaker, Intel Corp, says its current-quarterly revenue numbers would decline as much as 8 per cent and trimmed its 2013 capital spending plans, as personal computer sales drop due to the growing popularity of tablets and smartphones.

Despite persistently weak demand for PCs, Intel held firm on its previous forecast that 2013 revenue would grow by a low single-digit percentage, a target some analysts believe is becoming more difficult to hit.

Following Intel’s earnings report, Chief Financial Officer Stacy Smith told analysts on a conference call that its new Haswell chip, new ultrathin laptops and an improving economy, will help revive growth in the second half of the year.

“They are holding to the same ultra-bullish forecast they gave before,” states Stacy Rasgon, an analyst at Bernstein Research. “They are presumably pretty bullish on the new products they are planning.”

Personal computer sales plunged 14 per cent in the first three months of the year, the biggest decline in the two decades on record, as tablets grew more popular and buyers seemed to be avoiding Microsoft Corp’s new Windows 8 operating system, according to IDC.

Feeling the heat, Intel is reducing its annual capital spending budget from $13 billion to $12 billion.

Sticking to the Plan

Intel said its first-quarter revenue fell to $12.58 billion from $12.91 billion in the year-ago quarter.

Compared to the second quarter of last year, that amounts to roughly no change or a drop of as much as 8 per cent.

Intel posted first-quarter net income of just more than $2 billion, or 40 cents a share, down from $2.7 billion, or 55 cents a share one year ago.

“These numbers are not very solid, but the second-quarter guidance is better than feared,” says Doug Freedman, an analyst with RBC Capital and based out of San Francisco.

The Canadian Business Journal elicited the opinion of Nick Bontis, Professor of Strategy at the prestigious DeGroote School of Business at McMaster University.

He’s also a successful businessman with an entrepreneurial spirit and book titled Information Bombardment.

“For me, I don’t believe the PC is dead or dying,” Bontis tells us. “We did receive the stats that volume had gone down about 14 per cent in the last quarter, which was quite significant. The power of tablets and smartphones has taken some of the dominant market share that let’s say desktops and laptops used to have.

Put the Eulogy on Hold

Bontis goes on to explain why he believes the PC – be it desktop or laptop – is not slowly marching towards being 86ed.

“It has to do with what I call codification, which is the ability to actually input information into a computer system,” he reveals. “For the longest time the primary codification mechanism was typing. It’s still the dominant mechanism for putting information into a computer system. Typing requires a keyboard; laptops and desktops have keyboards – tablets and smartphones do not.”

(At least not the size of keypad anyone would want to do any excessive amount of data inputting with).

“If you look at the rate with which you can fire off a 1,000-word essay on a computer vs. the rate with which it’s going to take you to fire off that same 1,000-word essay on a BlackBerry – which has its own keyboard – you can tell the difference as to why keyboards will not die. This goes for both the consumer and the business market.”

From the business sector in particular there are a couple of functions that have really morphed into more of a tablet/smartphone distribution channel. One of them is learning and development, which at one time was known as computer-based training (CBT).

“It used to be that an employee could sit at their computer, at their desktop in their cubicle and go through a two-hour module on group selling, for example,” Bontis remarks. “Historically that used to be a classroom-based type of investment for many businesses and organizations. When computers came along they realized they can do it more cheaply by doing it at the desktop and not have to fly people to Hawaii, or wherever, for corporate junkets and training seminars any more.”

With the advent of tablets and smartphones, technology has gone one step further. But a key aspect to remember is that smaller isn’t always better, which leads us to inputting information.

“Inputting information is a judgment call based on how much and how quickly it needs to be done,” Bontis explains. “One example would be a sales person on the road who has to put together a request for proposal (RFP) for an order. That person can absolutely use a smartphone or a tablet because in many cases organizations have created apps for that so they’ve pre-filled in all the fields and records and all you really have to do as a sales person is put in a couple details to do with volume and pricing.”

The app itself can generate a PDF and then email it directly to the person as they’re standing in front of you.

Then there’s the flip side. If a sales person has to start from scratch with each client requiring vastly different content and background information, then the process will be that much more involved.

“If they need an initial PowerPoint deck presentation to the client, that presentation will still absolutely be done on a desktop or a laptop,” Bontis states emphatically. “Everything is potentially doable on a smartphone or a tablet but it becomes very cumbersome and too time consuming.”

This of course is just one example out of thousands to be made for why certain personnel within the realm of business will always need larger computing devices. In the publishing industry – be it online or in print – the creative department needs this type of equipment to carry out their jobs. It wouldn’t make much sense for a graphic artist to be rendering the cover of a magazine on a smartphone.

It stands to reason there will be a stabilizing effect in sales of PCs. Bontis believes the present downturn is based on two issues.

“The first has to do with the operating systems, and specifically Windows 8,” he says. “Interestingly enough it seems more like a tablet OS with the tiles and the touching of the screen. It’s kind of ironic that for years tablets tried to be more like laptops and now we’re coming full circle where laptops are trying to be like tablets. I think a lot of consumers and business customers have not upgraded to Windows 8 because of that.”

Windows 7 is very stable and the average IT specialist probably perceives it’s not a huge functional leap for their business to upgrade to Windows 8.

The second issue has to do with product life cycles, which was typically two to three years when talking about a desktop or laptop.

“My laptop in front of me is probably three years old,” Bontis says. “What has happened, unfortunately, on the smartphone side is that the product life cycle has shrunk significantly. From a marketing perspective I’m told a new version of my smartphone is going to come out in less than 12 months. If I have a scarce pool of money as a business owner, it’s getting kind of ridiculous in that I’m expected to upgrade every year.”

Bontis also told us of a recent business trip he was on where he took both his laptop and smartphone. Each provided benefits for different tasks.

Smartphones and tablets all have access to remote capabilities, meaning there are lots of services out there for the user to be able to replicate what’s on the desktop. There are programs called Dropbox and SugarSync, which has the ability to sync files on all computing machines in that person’s network. Every device can have the same information on it. The real issue is how much effort you want to put into developing a document file. A portable manual hand saw will eventually cut through a large piece of wood, but not nearly as fast and efficient as the gas-powered chainsaw.

Will the market requirement for PCs decrease? We can all but guarantee it, because many employees don’t need them with the advent of the smaller communications devices. But for a significant segment of the working population, PCs are now and will remain critical hardware elements providing the best and most efficient solution for getting the job done.

To borrow a quote from Mark Twain after hearing that his obituary had been published in the New York Journal: “The reports of my death are greatly exaggerated.”

Much the same can be said for the PC.