With PCs passe, firms seek future in tablets

Gung-ho that the gizmo is flying off the store shelves, tech majors are in a tizzy over the business it would bring

Dell, one of a handful of American companies still making personal computers, struggles for every percentage of market share.

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 H.P.), 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 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 per cent 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 per cent 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. (That was also true of Apple and the iPod market.) The other observation that is no joke: Apple is the only maker with strong PC growth.

Spending on desktops and laptops grew 16 percent in the latest quarter, while Dell’s consumer product sales increased 1 per cent.  “The tablet effect is real,” said Leo Apotheker, HP Chief Executive, in an interview, 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.

Higher margins
Michael S Dell, Dell 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 per cent 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 United States will outpace those of netbooks, the mini-laptops people use to surf the Web, according to Forrester Research. Netbooks were considered a salvation for the PC industry when they were introduced a few years ago, but they have since fallen out of favor with consumers.

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. For that matter, selling tablets is no easier for the smartphone makers. Motorola Mobility, which Google said this week that it would buy, got nowhere with its Xoom. Research in Motion entered the tablet market this spring with a long history of building mobile devices. Still, the company has struggled to get consumers to buy its tablet, the PlayBook, which it introduced earlier this year.

RIM says it shipped 500,000 PlayBooks during its last fiscal quarter. Shoppers were not charmed by the PlayBook’s inability to directly check corporate e-mail — they have to connect wirelessly to BlackBerry phones — and lack of applications.

Benefit for businesses
RIM’s strength was selling to institutions, not individuals, but even here the changing market buffeted the maker. Most corporations have no idea if their employees need to use tablets at work. But even before the IT departments work that one out, employees decide that tablets are like phones and buy them at their own expense. So RIM’s insider status has become somewhat meaningless since the purchasing decision effectively becomes a consumer choice.

Alan Panezic, RIM Vice President for Enterprise Product Management & Marketing, acknowledged that many companies make employees choose, and pay for, their tablets. “This is an area that’s still developing, to be honest,” Panezic said. “There’s obviously a wonderful benefit for businesses if workers are going to supply their own computers.”

But that may change if corporations decide that tablets are an important work tool, he said. While most employees are now willing to spend $50 to $200 to buy smartphones, which are subsidized by carriers, many of them may balk at spending $500 or more for a tablet. Given RIM’s close association with e-mail, the initial inability of the PlayBook to handle it without a BlackBerry surprised many industry observers. Panezic that some would-be corporate customers had effectively told RIM to come back once the feature was added.

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 per cent market share.

Gavin Kim, 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,” said.

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