For the past few years the buzz in the chat rooms and the media has been that the PC market is dead, that Apple Inc. (NASDAQ:AAPL) rules, and that the future of the “old tech stocks” such as Intel Corporation (NASDAQ:INTC), Dell Inc. (NASDAQ:DELL), Hewlett-Packard Company (NYSE:HPQ) and to a lesser extent Microsoft Corporation (NASDAQ:MSFT) is at best uncertain.
The data that I am looking at right now — that shipments of personal computers were down by more than 10% in the first half of this year — seems to support the thesis that PC users will eventually all migrate over to mobile devices. After all, the second quarter marked five consecutive quarters of year-over-year declines — the longest period of declines on record for the PC industry. Still, the PC market represents a $200 billion opportunity — and that is worth going after.
Catalysts on the horizon
There are, however, two major catalysts on the horizon that may cause PC sales to bounce back in one or both of the last two quarters of this fiscal year: Intel Corporation (NASDAQ:INTC)’s new microprocessor, Haswell, which was reportedly very well-received by users and analysts, and Microsoft Corporation (NASDAQ:MSFT)’s release of Windows 8, which has effectively incorporated consumer complaints about the software in order to improve functionality (yet may not have been designed with the enterprise end user in mind).
Even with these two catalysts, though, it is unclear whether or not corporations will find enough value in these improvements to justify a PC refresh, especially if hiring does not pick up. What’s more, with the Federal Reserve signaling that interest rates may rise, it is unclear whether or not lending, which has remained tepid, will pick up and whether or not capital will flow to small and medium-sized businesses.
A cultural shift
The reality is that there is little product differentiation in the PC space, and Lenovo, a low-cost Chinese brand, has emerged as the market share leader in the industry, even though its shipments are also declining. That is because the most important thing to consumers is increasingly no longer the hardware, but rather the types of applications as well as the content and data that can be accessed on these tools. Consumers want the ecosystem and the PC does not lend itself to the consumption of content — books, movies, applications, music and games — the way that Apple Inc. (NASDAQ:AAPL)’s and Google Inc (NASDAQ:GOOG)’s devices and application stores do.
The smartphone market is also under pressure. That market is also becoming more and more commoditized as Apple and Samsung, the two market leaders, have trouble developing anything other than line extensions that offer few new benefits.
The Microsoft and Dell strategy
As the tech sector continues down a structural shift towards mobile, Microsoft Corporation (NASDAQ:MSFT) and Dell Inc. (NASDAQ:DELL) will need each other more and more. After all, Apple Inc. (NASDAQ:AAPL)’s iPhone operating system and Google Inc (NASDAQ:GOOG)’s Android platform are clearly dominant and Dell’s PC and PC-related business still represent two-thirds of its sales (as compared to one-third for enterprise products).
By going private and partnering with Microsoft, Dell Inc. (NASDAQ:DELL) can focus more on developing enterprise solutions (a business that Microsoft will also have to focus on). And Microsoft Corporation (NASDAQ:MSFT) can sleep better and night knowing that it has a loyal hardware partner whose products it can influence.