1975 was a bumper year for the personal computer (PC). Nearly 50 000 of them were sold, hatching an entirely new market. Just a year or two earlier, only giant corporations could afford computers. Jump forward to 2012: between July and September 87-million new PCs were shipped and more than 1.5-billion were in use. So why are analysts worried about the PC market?
Part of the problem is that, in the same period in 2011, 95-million PCs were sold, (according to Gartner, a research firm). So PC sales are declining at 8.3% – faster than they did at the height of the financial crisis in 2009.
IHS iSuppli, another research firm, estimates that the contraction for the whole of 2012, compared to 2011, will be 1.2%, from 352.8 to 348.7-million units. That's the first annual decline since 2001.
These declines don't sound large but many people see them as harbingers of an industry finally peaking after 40 years of nearly continuous growth. In April 2012 the Guardian pointed out that analysts had been steadily revising their forecasts for the next next three years of PC sales downwards. The only segment of the market predicted to grow significantly is portable computers in emerging markets – typically a part of the market with lower profit margins.
Why would the market be peaking? Many analysts point to saturation. It's unusual to find a household in the developed world without a PC. Developing economies have been taking up the slack for years but even their growth is slowing steadily.
But a more compelling answer is gaining traction: cannibalisation. Touch screen tablet computers, such as Apple's wildly popular iPad, appear to be eating into the market for PCs. In developing economies, touch screen smart phones are often the first choice for primary computing devices. They are more portable, have longer lasting batteries and built in internet capabilities. They are also cheaper.
This spells bad news for everyone in the PC value chain, from manufacturers like HP (currently struggling to stay afloat) to traditional software companies like Microsoft. It explains why Microsoft is venturing boldly into the hardware market with its Surface tablet which will launch on October 26. Microsoft will release Windows 8, its first tablet-friendly operating system, on the same day.
This move has angered some PC manufacturers. JT Wang, CEO of Acer (the world's fourth biggest PC manufacturer), has warned Microsoft's actions will "kill the whole ecosystem". You can understand his ire. By building its own tablet, Microsoft is both announcing its verdict on traditional PCs (i.e. they are in decline) and cutting its long-term partners out of the next era of computing.
So are PCs finished? Not by a long shot. Even the most pessimistic analysts foresee the market continuing to grow slowly but steadily until 2020. And no one seriously expects tablets to take over the heavy duty computing many professionals require in their day-to-day activities – at least not tablets as we currently know them.
But there's no doubt that more and more people are choosing tablets (or smart phones) as their primary computing device. Which begs the question: why aren't tablets counted as PCs? Microsoft is pushing for this (surprise, surprise) and in many ways it makes sense. A tablet is, after all, a mobile computer albeit one with a touch screen interface.
Except that traditional PC manufacturers are, by and large, shut out of the tablet market. The two biggest players are Apple (whose PC business is a sideshow compared to the iPhone and iPad) and Samsung (who has never bothered with the PC market). Together they command more than 95% of the market, leaving the likes of Acer and HP to fight over scraps.
And so the term "personal computer" is likely to continue to refer to desktop and laptop computers, if only to differentiate them from sexy tablets.
That market is very definitely in decline, but then so is the United States. The height of its (super)powers was the 50s and 60s, and eager analysts have been comparing it to the declining Roman Empire ever since. And yet the US is still the world's dominant economic and political force and should remain so for another decade at least.
The same applies to the PC market: it may be sinking but its descent is likely to be slow and steady. The trick for players like Acer and Microsoft is deciding when to jump.