Waning PC Sales Signal Beginning Of Post-PC Era

PC sales have significantly slumped, post-PC era begins

The PC has had a long and eventful history since its release by IBM in 1981. Due to its open nature it rapidly displaced its proprietary competitors and became the standard for personal computers. The PC market was flourishing and growing perpetually since the 1980’s, but in the last couple of years it has seen a sharp decline in sales. This new period is being called the “post-pc era” of smartphones and tablets, with the PC finding itself in a similar situation to the dinosaurs when the meteor struck.

IBM PC: 1981-2013

The PC is not dead in the traditional sense, but PC sales have completely flat-lined over the last few years. In business this is the canary in the coal mine. When a market stops growing you either become a low margin high volume vendor or you get the hell out.

IBM’s initial decision of an open technology PC allowed IBM to bring the product to market very quickly, but in the end cost them the entire market they had created. The company has slowly been selling off its PC related divisions, starting with the hard drive division in a 2002 sale to Hitachi. This was followed by the sale of its entire PC division to Lenovo in 2004. Currently IBM plans to completely exit the x86 computer market by selling its PC server division to Lenovo as well.

In retrospect these decisions (besides making the PC open) were smart moves for IBM. Hard drives have now switched largely to SSD technology, the PC market is an incredibly low margin high competition business, and the x86 server market is probably going to become a low margin ordeal as well. IBM hasn’t survived for over 100 years by making stupid decisions. Well, mostly not stupid decisions.

A Shrinking PC Market

IBM has figured out its exit strategy (it got the hell out), but other PC OEMs have not been not so lucky. Many years of consolidation have left brands like Compaq and Gateway a distant memory. Compaq was swallowed up by HP in 2002, and Gateway fell to Acer five years later. The big players that remain include HP, Dell, Toshiba, and Lenovo, with Lenovo being the only one experiencing growth.

Dell, once the leading giant of the PC industry is planning to go private. Michael Dell himself wants to purchase a large stake in the ailing company. Rumor has it that a private Dell would leave the PC market behind. This possibility has led Microsoft to throw its hat into the investment ring to ensure that one of its biggest OEM customers doesn’t ditch selling Windows machines. Meanwhile Dell’s biggest competitor HP is attempting to reinvent itself by focusing on its server business.

Despite this major upheaval the PC itself is going to stick around for a long time. There is currently nothing that can effectively replace the PC, but sales and profit margins will never recover. Unlike the rapid upgrade cycle of the 1990’s a modern PC can easily last 5-10 years. This combined with a saturated market and cutthroat competition leaves the PC an unattractive market to be in.

A Post-PC Future

In sharp contrast to PC OEMs struggling with razor thin profit margins the post-PC companies are raking it in. According to the Business Insider Apple’s profit margins for the iPhone were an astonishing 49% to 58% for the 2010-2012 period, with iPad devices falling between 23% and 32%. Though Apple’s profits have fallen somewhat in 2013 they still blow the PC industry out of the water.

The future clearly belongs to mobile computing devices. Obvious winners in the space so far are Apple and Samsung, with both companies having a significant presence in the market. Losers at this point appear to be Nokia and Microsoft whose partnership has not resulted in success for either company.

It’s hard to say how things will play out at this point, though some parallels to the 1980’s computer wars do exist. Back then Apple was the leader of proprietary computer sales with the Apple II and Macintosh, and the IBM PC was the open computer hardware competitor. Today a similar situation exists with Apple again being the leader of the proprietary mobile devices, and Google’s Android platform the open competitor.

If history has taught us anything it’s that the open platform becomes dominant. Android has already overtaken the iPhone in market share. However, Apple retains a much higher profit margin, and this fact is likely to remain for the foreseeable future. Whether Apple will be content with retreating to its classic “premium product, high margins, small market share” business model or whether it will fight for market share remains to be seen. It will certainly be very interesting to watch.

This post includes Computer Sale by Qole Pejorian used under the Creative Commons Attribution 2.0 Generic license.

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