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Summary:

The impact of declining desktop and laptop demand on the PC industry became that much clearer this morning, as Microsoft reported lower-than-expected second-quarter earnings driven, in part, by a deterioration of its client PC business (sever software sales are flat) and said it would cut 5,000 […]

The impact of declining desktop and laptop demand on the PC industry became that much clearer this morning, as Microsoft reported lower-than-expected second-quarter earnings driven, in part, by a deterioration of its client PC business (sever software sales are flat) and said it would cut 5,000 jobs. The crappy economy is kicking the desktop PC industry while it’s down. The desktop has been suffering ever since laptops and accessible wireless connectivity started making mobile computing productive; even laptops are seeing their fortunes fall as low-cost netbooks gain an audience.

“Client revenue declined 8 percent as a result of PC market weakness and a continued shift to lower-priced netbooks,” Microsoft said in its press release. Indeed, financial insecurity has consumers not only questioning the need for any new computer, but gravitating toward less expensive options, such as netbooks. Analysts are closely watching to see how sales of Intel’s Atom chip for netbooks affects its higher-margin, full-performance chip business as well. While many of the same hardware players build or make components for netbooks, margins on such products are generally lower and cannibalize sales of more powerful machines.

Intel reported a 90 percent drop in profits last week and with its fiscal first-quarter results, may end up reporting a loss for the first time in 22 years. It’s laying off between 5,000 and 6,000 people as it shutters manufacturing operations to match production with demand. Nvidia expects its sales to drop by 40-50 percent on low PC demand, and AMD is expected to post a bigger fourth-quarter loss than the year before. The bright spot so far is Apple, which yesterday reported earnings growth of 4 percent despite desktop revenues falling 31 percent year over year.

Apple has embraced the mobile computing trend with a line of laptops and its iPhone; it’s also emphasized peripherals with new displays. So far, peripheral items make up almost 4 percent of Apple’s sales. Research firm Technology Business Research notes:

Desktop revenue growth was affected by tightened school district budgets, and spectacular sales in the year-ago quarter, but the main reason for the decrease, TBR believes, is the decline of the desktop PC, especially in the consumer market. Apple signaled the new configuration when it introduced a new display along with its new MacBooks. TBR believes the combination of a stationary display, keyboard and mouse with a mobile PC is the ideal configuration for many users.

Such a configuration could work with either a laptop or netbook. In other words, the era of the desktop PC is quickly coming to an end.

  1. The good news for laptop manufacturers is that laptops endure a lot more wear and tear than PCs, so even though we reached a point where increasing computing power is by and large lost on the average user and not a necessary reason for upgrading, at least laptops/netbooks will need routine replacement.

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  2. Maybe you’ve got a point there. Apple MacBooks had a growth of 34% in their quarterly report. And I am actually one of them, using the new MacBook Pro and the new 24″ LCD monitor at home. But in my business I am still using a MacPro and will probably do so for long.

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  3. Its a little unclear how selling less desktops and more laptops/netbooks effects Microsofts earnings. As long as the end device is running windows doest it really matter? I doubt they charging more on avg for a license of windows on a desktop vs a portable

    For the other players like Intel and AMD there is some effects based on what chips they are putting in the various device types.

    Overall for the hardware guys (HP, Dell, Apple, etc) and MS it should not really matter if the desktop goes away completely. All that matters is total computer sales and margins.

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  4. Stacey Higginbotham Thursday, January 22, 2009

    Kaiyzen, many early netbooks didn’t come equipped with Windows Vista which cuts into earnings. Windows 7 will be better on netbooks, tho. But for the hardware guys, Asus and MSI are winning hearts and minds with their netbooks, while Dell and HP are playing catch up. That means there will be a market share battle on a lower-margin product. Good times.

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  5. @kaiyzen

    Windows Vista licenses are the same on desktop / laptop but Windows XP on a netbook earns Microsoft only half as much.

    Let’s not cry for MSFT – they had over $4 Billion (yes, Billion) of profits in the last 3 months.

    *written on a desktop computer

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  6. So will Windows 7 be priced the same on netbooks as on notebooks/desktops? And can a $300 product really spare another $30 in the cost?

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  7. [...] once again the death and destruction of the desktop is being heralded by Stacey Higginbotham because Microsoft reported lower than expected second quarter earnings. Or to put it in plain [...]

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  8. i don’t fee easy surfing internet in mobile, i think, desktop is desktop, nothing like it.

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  9. Microsoft has already adopted tier-pricing for netbooks. They get to use XP for cheap. They’ll have to do the same with Windows 7 as well. Perhaps they’ll do a special Netbook Edition SKU and strip out Media Center or something to differentiate it. Adding $30 to the cost is fine, but adding $100 (or whatever the supposed retail cost of Windows is) is certainly not.

    You have to remember, netbooks used to all come with Linux, and no one wanted them. For most people, Windows is worth the $30 premium. However, Linux is not so terrible that people wouldn’t deal with it if it meant saving $100 on $200 netbook. Microsoft knows this, and will not price themselves out of the fastest growing sector of hardware sales. That’s something Apple would do, but not Microsoft.

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  10. Yeah, just wait until mobile gets the full size screen later this year – http://www.microvision.com

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  11. There are many different product related services that come with desktop PCs especially in an office. Companies are not growing and expanding so that that are is not generating much revenue.

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  12. Companies still like desktops because they are harder to steal and employees like them because otherwise the boss will trick them into taking work home with them. Desktop will be around for a while, even in the home environment as long as the cost advantage is there.

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  13. [...] I read from Stacey Higginbotham, of GigaOM, quoting a research group: TBR believes the combination of a stationary display, keyboard and mouse with a mobile PC is the [...]

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  14. It will eventually “kill” the desktop PC as we know it, as the cost difference shrinks. But even desktop PC’s are getting smaller and smaller, so it appears the market will just evolve and not die off completely.

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  15. Netbooks haven’t got enough storage yet, Smartphones are still in their relative infancy and I don’t think anyone can say with too much clarity how they’re going to impact on our digital lives in five years time. Laptops are still expensive, fragile, and easily lost. I won’t be retiring my desktop anytime soon.

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  16. Wow I didn’t think the computer industry would take such a big hit. One of those industries you d guess might be more immune…

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  17. The market will evolve into three main segments, if my personal use is any indicator:
    * A consumer desktop unit that will become the ICE (information, communication, entertainment) center at home. Thanks, Boxee!
    * A laptop unit for work and general ICE needs. This will represent the smallest of the three market segments.
    * A pocket unit as an ICE. The front jean pocket is the new back jeans pocket. Who needs a wallet?

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  18. The PC industry, and MS was impacted because it was narrowly focused on always forcing people to newer and faster machines. They lost money because they weren’t prepared for innovative and diverging markets such as Netbooks. While MS tried to control the market with their Windows/Office monopoly, a functional OS like Linux allowed PC makers to innovate outside the strict marketing controls of MS. MS lost money because they were not prepared to follow suit.

    [This isn't so much a pro-Linux argument, which despite MikeC saying no one wanted I believe have a significant chunk of sales - something like 30%?, but rather pointing out that the industry wasn't prepared for a company breaking rank and selling a less expensive device that met the markets needs]

    An I see Stef is making the same mistake again assuming the market is tightly definable. I think what we are taking that next step into ubiquitous computing and the market will get very broad with the variety of products and capabilities. We are already there in part with smart phones, media pcs, laptop/mid/notbook, voip phones with email, visual voice mail, and the weather, etc.

    The PC is not dead, but it is going to have to share the playground with a lot more kids.

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  19. [...] partner in crime, Microsoft Corp. has been pretty vocal about the impact of net books on its business. They experienced an 8 percent decline in their client revenues because of lower-priced netbooks [...]

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  20. [...] partner in crime, Microsoft Corp., has been pretty vocal about the impact of netbooks on its business. They experienced an 8 percent decline in their client revenues because of lower-priced netbooks [...]

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  21. [...] is the original post: Comment on Mobile Computing Is Killing the Desktop PC by Netbook … Share and [...]

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  22. [...] more here:  Mobile Computing Is Killing the Desktop PC Share and [...]

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  23. [...] Stacey Higginbotham | Thursday, January 29, 2009 | 10:21 AM PT | 0 comments The drop-off in demand for personal computers is hitting the graphics chip market hard. Jon Peddie Research has issued a report showing that total GPU shipments fell to 72.4 million in the fourth quarter — down 2 percent year-over-year and 35 percent from the third to the fourth quarter. This is the first time fourth-quarter shipments have fallen sequentially since 2000. Maybe people are buying netbooks and smartphones rather than PCs. [...]

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  24. [...] | Tuesday, February 3, 2009 | 9:00 PM PT | 0 comments The desktop computer is in decline, hurt by netbooks and a grim economy. But as demand for desktops and even notebooks falls, so do Nvidia’s revenues. To keep [...]

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  25. [...] if x86 computing is losing its ubiquity.  This looks like one way Intel is circling its wagons as PC sales drop, GPUs gain prominence, and it finds itself fighting for mobile market share against chipmakers [...]

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  26. [...] if x86 computing is losing its ubiquity.  This looks like one way Intel is circling its wagons as PC sales drop, GPUs gain prominence, and it finds itself fighting for mobile market share against chipmakers [...]

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  27. Oh, panic stricken masses, there is no need to envision a Borg invasion, you still can’t hot-wire DNA with a PC.

    Because you can buy a laptop with the power to do sophisticated gaming graphics, it seems the necessity for a customized PC “box” is left for the build-it-yourself, I like to tinker market. It would seem to me that desktop case PCs should have been kicked to the curb years ago. BUT, I would rather have the display of my choice rather than being stuck with the one attached display that laptops come with for my desktop machine.

    So, give me the bottom half of the laptop as my desktop PC (configured to my specs, of course), a cable and the separate display of my choice (regular or wide screen, projector or LCD array). Then I can have low power technology in my office. Folks like Dell wouldn’t have to manufacture two platforms, they could simplify production. If I need portability, I can get a netbook or other PDA (link-n-sync baby).

    The all in one, under the keyboard unit is flexible and practical and cheaper without the display attached. You already got the laptop case format, the only thing in the way is the attached display. Remove the display, hey it’s a desktop!

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  28. The way I see it, unless the PC is really out of shape, there is no dire need to have a new one these days because there have been no major OS upgrades recently, and nothing major to look forward to in the near future. Mobile PC prices have dropped these days. The improved functionality of these netbooks are already at par with those of desktop PCs, such as having comparable memory capacity and having standard sized keyboards. So on top of having reasonable prices and great functionality, these gadgets are very portable so if one really has to purchase a PC, buying a netbook sounds like an even better deal than buying a desktop PC. That is why I think Desktop PC Shipments Are Expected to Fall to Record Lows in 2009

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  29. [...] ‘Client revenue declined 8 percent as a result of PC market weakness and a continued shift to lower-priced netbooks,’ Microsoft said in its press release. Indeed, financial insecurity has consumers not only questioning the need for any new computer, but gravitating toward less expensive options, such as netbooks.more [...]

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  30. People are in a hurry – more rushed than ever. Lugging a big machine around with you, day-to-day, is out of the question (lol)…

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  31. [...] belief for the last 10 months that mobile computing will be the way of the future. Trends (here and here) show that we are gravitating towards physically smaller computing devices. At the same time, [...]

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