April 11, 2013

PC outlook darkens as sales slump deepens

Michael Liedtke and Peter Svensson / The Associated Press

SAN FRANCISCO — The ailing personal computer market is getting weaker, and it's starting to look as if it will never fully recover as a new generation of mobile devices reshapes the way people use technology.

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A woman walks past laptop computers running Microsoft Windows 8 operating system during the software's launching ceremony in Hong Kong in October 2012.

AP

As sales fall, so do shares of companies making PCs

If fewer people are interested in buying a new personal computer, then fewer investors want to own stakes in companies whose fortunes are tied to the sales of laptop and desktop machines.

That logic ruled Thursday as Wall Street reacted to fresh evidence that PCs are turning into a dying breed of technology as consumers and businesses embrace smartphones and tablet computers as their preferred computing devices.

Shares of PC software maker Microsoft Corp. and PC maker Hewlett-Packard Co. took significant hits on the news that PCs suffered an unprecedented sales decline during the first three months of the year. Other companies connected to the PC industry, such as Intel Corp., also were affected, although not to the same degree as the industry bellwethers.

The latest evidence of the PC's infirmity emerged Wednesday with the release of two somber reports showing unprecedented declines in sales of desktop and laptop machines during the first three months of the year.

As if that news wasn't troubling enough, it appears that a pivotal makeover of Microsoft's ubiquitous Windows operating system seems to have done more harm than good since the software was released last October.

"This is horrific news for PCs," said BGC Financial analyst Colin Gillis. "It's all about mobile computing now. We have definitely reached the tipping point."

First-quarter shipments of PCs fell 14 percent worldwide from the same time last year, according to International Data Corp. That's the deepest quarterly drop since the firm started tracking the industry in 1994. Another research firm, Gartner Inc., pegged the first-quarter decline at 11 percent.

The deviation stemmed in part from the firms' slightly different definitions of PCs.

No matter how things are parsed, the PC market is in the worst shape since IBM Corp. released a desktop machine in 1981. PC sales have now fallen from their year-ago levels in four consecutive quarters, a slide that has been accelerating even amid signs that the overall economy is getting healthier.

PCs are going out of style because they typically cost more than smartphones and tablets, and aren't as convenient to use. Most PCs sell for $500 to $1,500 while the initial out-of-pocket expense for a smartphone runs as low as $99 while an array of tablets sell for $200 to $300.

Apple's late CEO Steve Jobs, whose company propelled the mobile computing revolution with the 2007 release of the iPhone, declared that the world was entering a "post-PC era" shortly after the iPad came out three years ago.

In a June 2010 appearance at a technology conference, Jobs likened challenges facing the PC industry to what happened to trucks in the U.S. decades ago as a shift away from farming caused more people to move into cities where they wanted to drive cars instead. "I think PCs are going to be like trucks," Jobs predicted at the time. "Less people will need them."

The traditional PC still has a long way to go before it becomes obsolete.

Despite the dismaying start in the first quarter, more than 300 million PCs are still expected to be sold worldwide this year. Tablet computers, a category that was insignificant until the iPad came along, is catching up rapidly: Nearly 200 million of those deices could be sold this year. Meanwhile, worldwide smartphone sales could surpass 1 billion units this year, Gillis predicted.

PC sales could be undermined even more during the next few years with the release of "wearable computing" devices that connect to the Internet through voice-activated equipment attached to glasses and wristwatches.

The growing reliance on mobile devices is creating new opportunities and tensions throughout the technology industry. Internet companies such as Yahoo Inc. and Facebook Inc. that initially designed their digital services to be primarily consumed on PCs have been scrambling to tweak things so they work better on smartphones and tablets.

But the companies most threatened by the mobile upheaval are those that depend on PCs to make most of their money. This group includes technology heavyweights such as Windows maker Microsoft, PC makers Hewlett-Packard Co. and Dell Inc. and PC chip maker Intel Corp.

"It's time for these companies to make some critical decisions and ask themselves, 'How are we going to turn this ship around?'" said technology industry analyst Patrick Moorhead.

(Continued on page 2)

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