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The impact of declining desktop and laptop demand on the PC industry became that much clearer this morning, as Microsoft (s MSFT) 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 (s intc) 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 (s nvda) expects its sales to drop by 40-50 percent on low PC demand, and AMD (s amd) is expected to post a bigger fourth-quarter loss than the year before. The bright spot so far is Apple (s appl), 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.