A Realistic Assessment of the PC's Future

All around us, the evidence is overwhelming that the PC world is changing rapidly and in numerous ways -- use, sales, share of the electronics/IT equipment market, application development, and, very importantly, the surrounding supply chain.

Certainly, the PC has a future in our homes and businesses, but don't let anyone convince you they know exactly how that future will look or where things will remain the same over the next five years. Within a few years, the PC market will lose its title as the dominant consumer of semiconductors -- if it hasn't already. In the near future, the leading destination for many components used in traditional PCs will be tablet and smartphone plants.

The supply chain, especially the procurement and production elements, must be focused on accelerating that transition. I don't believe that's the case today, though the trends have been apparent for quite a few quarters. As consumers have migrated toward mobile devices, especially smartphones, the consequences for PC vendors and their component suppliers have become obvious. But apparently, they aren't obvious enough.

Intel Corp., the company with the most to lose as this shift has accelerated, has worked to establish a beachhead in the smartphone market. Nevertheless, many well-meaning analysts and industry observers have continued to spout the misleading view that the PC sector is unshakeable. The general opinion for a while was that tablets and smartphones would serve as complementary products to the traditional PCs, rather than cannibalizing the market. Think again.

Paul Otellini, Intel's president and CEO, had this to say about the changes in his company's market during a fourth-quarter earnings conference call.

From a product perspective, 2012 was a year of significant transitions in our markets and a year of important milestones for Intel...
At CES last week, I was struck by our industry's renewed inventiveness. PC manufacturers are embracing innovation as we are in the midst of a radical transformation of the computing experience with the blurring of from factors and the adoption of new user interfaces.
It's no longer necessary to choose between a PC and a tablet.

Let's turn to an IDC report released Monday for further explanation. The research firm said it sees PC innovation accelerating over the next few years as OEMs struggle to stem their losses and blunt the impact of smart phones on the market. PC OEMs and chip vendors can no longer afford to be complacent, IDC said; they must compete on all levels with tablets and Smartphone manufacturers to demonstrate the continued relevance of their products.

This view implies that PC vendors and their suppliers have been satisfied with the status quo until now. That would be putting it mildly. Until Apple Inc. rolled out the iPhone and positioned it as an alternative platform for accessing the Internet, many OEMs didn't see smartphones as competing devices. IDC said in its report:

Complacency and a lack of innovation among OEM vendors and other parts of the PC ecosystem has occurred over the past five years. As a result, PC market growth flattened in 2012 and may stagnate in 2013 as users continue gravitating to ever more powerful smartphones and tablets.

Ouch. Some in the industry still believe tablets and smartphones aren't an arrow aimed at the PC market. I don't see tablets and smartphones replacing PCs in all situations, but they will encroach enough on that territory to leave a visible mark. That's why PC vendors, semiconductor suppliers, and manufacturers of other components need to develop a strategy that embraces the smaller form factors of tablets and smartphones and leverage their advantages over traditional computing platforms to create market-winning products.

Mario Morales, program vice president for semiconductors and EMS at IDC, said in a press release, "The key challenge will not be what form factor to support or what app to enable, but how will the computing industry come together to truly define the market's transformation around a transparent computing experience."

That conversation is a couple of years late, but it's welcome nonetheless.