Apple Inc. (AAPL), Microsoft Corporation (MSFT): The PC’s Day of Reckoning Is on the Horizon

It may take a few more years, but eventually the PC’s day of reckoning will be here. In the not-so-distant future, the tablet market will overcome the PC market in unit volumes. Market researcher IDC is predicting that this will happen come 2015.

Tablet shipments are expected to grow by 59% this year to hit 229.3 million, compared to the 144.5 million units shipped in 2012. That should be enough for tablets to overtake the laptop subset of the broader PC market by year’s end.

IDC’s Ryan Reith says the transition was sparked by a difficult economic environment, but a new global computing paradigm is taking shape with mobile front and center. Tablets are cheaper than PCs and many consumers have seen discretionary income decline amid a tough global economy. The PC will always have a place in the enterprise with business users, but the large consumer market is quickly shifting to tablets.

Low-cost devices with smaller form factors will drive the shift. Apple Inc. (NASDAQ:AAPL) remains the dominant vendor with the iPad, but intense competition from Google Inc (NASDAQ:GOOG) Android may put pressure on prices. Low-cost Androids are expected to cause worldwide average selling prices to fall nearly 11% to $381 this year.

Apple Inc. (AAPL)Over half of the market this year will be devices with displays smaller than 8 inches. IDC similarly attributes Android’s success in the low end to this shift, while Apple Inc. (NASDAQ:AAPL)’s response with the iPad Mini will reinforce it. The data also confirms that Steve Jobs was wrong that 9.7-inch is the perfect tablet size.

Screen Size 2013 Forecast 2017 Forecast
Smaller than 8-inch 55% 57%
8-inch to 11-inch 43% 37%
Larger than 11-inch 2% 6%

Source: IDC.

Microsoft Corporation (NASDAQ:MSFT) has yet to make a meaningful impact on the tablet market. The software giant is very vocal with its belief that the line between PC and tablet will continue to blur, what with OEMs releasing every imaginable convertible form factor. As far as IDC is concerned, devices with detachable keyboards, including Surface, are tablets, while devices with hard-wired keyboards, are PCs.

IDC uses physical specs to differentiate instead of operating system. That means Windows 8 can still potentially benefit from the shift, even if some Windows 8 devices are classified as PCs while others are considered tablets. Touchscreen adoption is on the rise, which bodes well for the platform’s prospects.

The trend toward smaller devices should also be a reminder to Microsoft Corporation (NASDAQ:MSFT) that it desperately needs to launch a smaller Surface.

Apple Inc. (NASDAQ:AAPL)’s market share may continue to decline as broader tablet growth skyrockets, but iPad unit sales in absolute terms will be just fine. iPad pricing pressure should translate into gross margin pressure, but Apple is confident in the long-term opportunities and is willing to take the short-term hit.

The article The PC’s Day of Reckoning Is on the Horizon originally appeared on and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple Inc. (NASDAQ:AAPL). The Motley Fool recommends Apple and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Apple, Google, and Microsoft Corporation (NASDAQ:MSFT).

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