The Shift: as tablets surge, PCs lose


The summer might be over, but dark clouds of gloom keep gathering over techland — well at least the PC part of the techland. Last week, Intel, the largest chip maker in the business, pre-announced that it would miss its already lowered estimates for the remainder of the year, mostly because of softening demand for its PC-focused chips. Intel blamed the macro-economic slowdown on softening corporate PC demand, a sluggish Europe and increasingly skittish growth economies like India and China. Intel’s announcement comes close on the heels of a similar warning from its rival, AMD.

What gives Intel’s forecast a doomsday-like quality is the fact that it comes weeks before the launch of Microsoft’s newest operating system, Windows 8. In the past, a new OS from Microsoft would result in the turbocharging of the entire PC ecosystem. So if Intel is experiencing softening demand for chips, then it is not hard to imagine Microsoft navigating choppy waters as well. It is not just Microsoft. In a research note this morning, JP Morgan’s research team pointed out that other suppliers to the PC ecosystem – hard disk drive makers — are going to suffer as well.

The traditional PC ecosystem also has another challenge — competition for attention and dollars from cheaper, more sexy devices such as smartphones and tablets. Amazon last week announced a whole slew of products including new Kindle Fires. There are new devices coming from Nokia and Motorola. And Apple is expected to unleash a wholesale upgrade of its product line-up that is rumored to include a new more affordable 7-inch iPad.

What does that mean? JP Morgan’s Tablet forecast has the answer:

Our revised 2012 tablet revenue estimate is $57.7 billion, versus $52.8 billion previously. Our revised tablet unit estimate is 118.5 million, versus 106.8 million previously. The implied 2012 growth rates of our revised revenue and unit estimates are 50.4% and 67.5%, versus 40.5% and 53.5% previously. Despite the upward revisions to our unit growth assumptions, we maintain a tempered view on ASP trends. We expect increasing pressures on pricing as tablet vendors test price elasticity. As a result, our revised 2012 tablet ASP is $487, versus $495 previously, and this may not be conservative enough.

That explains some of ARM’s queasiness around the future. The Cambridge, UK-based chip technology company makes it possible for companies like Qualcomm and Texas Instruments (TXN) to make chips that power various phones and tablets.

ARM’s announcement should worry some of the weaker phone makers – Nokia, HTC and Motorola – in particular who will have to spend a lot of money on marketing but cannot insure a great outcome. Why do I say that? Because consumer across the planet only have so many dollars to spend, especially against the dismal backdrop of macroeconomic conditions. How many of these devices can be sold?

It won’t be long before we find that out — though in case of Hewlett Packard and Dell, writing is on the wall. As for Apple, well, it did hit a new all time high this morning.

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