As PCs wane, companies look to tablets

Verne G Kopytoff & Ian Austen

Although the world is dependent on personal computers, making them has not been a great business for most American companies for almost a decade.

The announcement on Thursday by Hewlett-Packard that it was considering offloading its PC business, even though it is the undisputed worldwide market leader, was a clear sign of the difficulties. If HP goes through with the idea, it would follow IBM, an early PC maker, which was one of the first to recognise the long-term problems and, in 2005, sold its business to Lenovo, a Chinese company. Other American makers like Compaq (acquired by HP), Gateway and Packard Bell were absorbed by others or just faded away. Depending on how HP sheds the unit? it could sell or spin it off as a separate company ?only two American PC makers would remain. One of them, Dell, struggles for every percentage point of market share.

The other, Apple, prospers. And the reason it does highlights the shift from a PC-centric era to one dominated by smartphones and tablets. HP, Dell and, indeed, every PC maker worldwide, has been unable to make a tablet consumers feel they must have. At the same time HP said that it might spin off PCs, it killed off its tablet, the TouchPad, after just a few weeks on store shelves.

Computer makers are expected to ship only about 4% more PCs this year than last year, according to IDC, a research firm. Tablets, in contrast, are flying off store shelves. Global sales are expected to more than double this year to 24.1 million, according to Forrester Research. More than two-thirds of those tablets, however, are sold by Apple. Sales of its iPad pulled in $9 billion in just the first half of the year, or 30% more than all of Dell?s consumer PC business in the same period. The joke in Silicon Valley is that there is no tablet market, only an iPad market. The other observation that is no joke: Apple is the only maker with strong PC growth. Spending on desktops and laptops grew 16% in the latest quarter, while Dell?s consumer product sales increased 1%.

?The tablet effect is real,? said Leo Apotheker, HP?s chief executive, acknowledging that the TouchPad had failed to live up to expectations and that it would have cost too much to compete. ?It?s very different from where the business was going 10 years ago,? Apotheker said.

Last Friday, HP?s shares fell 20% in reaction to his plans.

Michael S Dell, Dell?s chief executive, took the opportunity to poke fun at the prospect of HP unloading its PC unit by saying in a message on Twitter that ?they?re calling it a separation, but it feels like a divorce.? Following up with more sarcasm, he said, ?If HP spins off its computer business … maybe they will call it Compaq.? Dell was clearly enjoying the moment, but his company faces the same market forces as HP. Its overall PC business has been flat. Recently, Dell has pared back some of its consumer products, including a 5-inch Streak tablet, while keeping a 7-inch tablet. Together, they eked out barely 1% of the market, according to ABI Research. Like HP, Dell is pushing its enterprise business, which has higher margins. But David Johnson, Dell?s senior vice president of corporate strategy, said his company had no plans to follow in HP?s footsteps and split off its PC business. ?We have no plans to change our strategy,? he said.

Tablets remain the hope of other PC makers and phone makers. By next year, tablet sales in the US will outpace those of netbooks, the mini-laptops people use to surf the web, according to Forrester Research.

But buyers see little need to buy any tablet other than iPad, even if it is slightly more expensive than some of its rivals, analysts said.

?The performance still isn?t there for a lot of them,? said Richard Doherty, research director for the Envisioneering Group, a market research and consulting firm. ?And it?s not just the product, it?s the ecosystem behind it.?

Over the next couple of months, Apple will face yet another wave of competition. Sony says it will introduce tablets, while Amazon.com is expected to sell a tablet this fall that builds on the success of its Kindle e-book reader. Google continues to hone its Android operating system for tablets. Future generations of tablets running Android could help myriad PC and phone makers challenge Apple?s domination in tablets as Android phone makers challenge Apple?s iPhone.

Of all Apple?s existing rivals, Samsung has made the most inroads with its Galaxy Tab. However, the company, which also makes PCs and other electronics, remains a distant second in the tablet race with a 12.5% market share.

Gavin Kim, a vice president for Samsung Mobile, said Samsung would continue trying to make its tablet better and fill gaps in the market. Tablets are a critical part of the company?s overall strategy, he said. ?Nothing from our perspective says we need to be letting off the gas,? Kim said.