Rebooting the PC industry: Tablets force a shift

By Jordan Robertson

Associated Press

Published: Tuesday, July 19 2011 8:35 a.m. MDT

SANTA CLARA, Calif. — The personal computer industry needs a jumpstart — and it's counting on a rescue from emerging markets and a late-to-the-party push into tablet computers.

The U.S. and European PC markets have entered a dangerous new phase: Fewer people are buying new PCs because of economic anxiety, market saturation and the rise of seductive new gadgets such as Apple's iPad. More signs of strain are expected as PC makers and their component suppliers begin to disclose quarterly earnings this week.

Make no mistake: The PC is still the backbone of the digital world, powering e-commerce, social networking and more. It is a fixture in homes and businesses in industrialized countries. More than 1 million PCs are sold every day, and the industry is bigger than ever.

But worldwide sales have slowed in recent years. The U.S. and European markets have fared the worst, suffering lately from declines compared with the previous year. Market research firms IDC and Gartner Inc. said last week that PC shipments worldwide grew at just over 2 percent in the second quarter, short of both firms' expectations.

One of the most urgent concerns is that the PC has become ubiquitous in many markets. That has presented the industry with a classic business problem: how to find new ways to sell an established product.

Although it's true that computers need to be upgraded regularly, businesses are only starting to spend money again as the economy slowly recovers. Consumers are updating their machines less often, spending their money instead on the latest handheld gadgets.

Apple CEO Steve Jobs has promoted the changes as a sign we've entered the "post-PC era." Technologists have thrown around that term for a decade in what turned out to be premature predictions, but the characterization may be coming true now.

"This is a time of intense change," said Sarah Rotman Epps, a Forrester Research analyst who has studied the evolution of consumer technology. "New competition for PC manufacturers makes it just really, really hard to make a profit."

As a result, PC makers are looking to emerging markets to boost sales.

The new strategy was evident at Intel's recent investors' conference, where the company's CEO, Paul Otellini, unveiled a map that identified where PC growth is expected to be strongest in coming years.

The U.S. and Europe were conspicuously not highlighted. Otellini gestured instead toward places such as Brazil, Russia, India, China — the so-called "BRIC" countries — as well as Mexico, Venezuela, the Czech Republic, South Africa and Turkey. All are expected to experience double-digit percentage growth.

The message: The world's leading computer chip-maker and its industry allies have no choice but to launch a marketing attack on foreign shores.

PC sales are decelerating in the U.S. because the same technological advances that fueled the PC industry's rise — faster processors and lower costs every couple of years — are now benefiting the devices that are usurping it. Consumers can now use smaller gadgets to do many of the same things they once did with PCs, such as surfing the Internet, storing photos and sending e-mail. Apple even boasts that users can edit home movies on an iPad.

Indeed, consumers' increasing demand for tablets is a looming threat. Some 50 million tablets are expected to be sold this year, and that could double to as many as 100 million next year, according to various estimates. Although that's still small compared with sales of 362 million PCs this year, as estimated by IDC, the PC industry has reason to worry because of how quickly the tablet has been able to claimed such a large corner of the market.

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