Horrible data
There’s no question that a sales decline of 14% when Microsoft Corporation (NASDAQ: MSFT) has just released a new version of Windows is a big problem. Bob O’Donnell of IDC commented in the research report: “…it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market.”
Two problems for the price of one
The problem is twofold. First, Apple Inc. (NASDAQ:AAPL)‘s iPad created a viable tablet market. The devices are easy to use, mobile, and can do most of the things that people want. That makes them a fashionable, if not fully functional, replacement for a new PC.
Seeing the shift, the newest Windows OS is an attempt to catch up and integrate tablets into Microsoft Corporation (NASDAQ: MSFT)’s world. That, however, required big changes to the operating system, like getting rid of the the “start” button that has become so familiar to PC users. Adding touch screen technology to a PC also pushes prices higher, making a cheaper tablet device look all the more enticing even if it can’t do everything a PC can.
Kicking the can
The thing about tablets is that they are basically a casual computer. They are great for doing most things, but are hard to use for things like writing long documents or creating complex spreadsheets. However, even old computers can handle such tasks even if they are a few technology generations behind.
Thus, a tablet lets customers who might otherwise have upgraded their computer wait a bit longer. That has likely lengthened the replacement cycle for personal computers. There will be fewer computers sold, overall, but that doesn’t mean that they are destined to be the next buggy whip.
The best positioned company
Oddly enough, the best positioned PC maker is probably Apple. The company’s iPhone, iPod, and iPad gadgets are so popular that it can be easy to forget that it even sells personal computers. However, computers accounted for about 15% of the company’s fiscal 2012 revenues. That’s not a huge number, but it is enough to make a big drop in PC sales a problem.
Apple Inc. (NASDAQ:AAPL) has a couple of things going for it. First, it sells a varied collection of highly desirable technology products—including one of the leading tablet computers. So, any trouble it experiences in PCs will likely be more than made up by increased iPad sales. The other important thing about Apple Inc. (NASDAQ:AAPL) products is that once customers start using Apple products, they often get sucked into the Apple Inc. (NASDAQ:AAPL) biosphere.
That usually means using iTunes, but often includes buying a Mac PC. Although the functionality of Apple Inc. (NASDAQ:AAPL) products are tightly controlled, they work right out of the box, a desirable attribute to most novice computer users.
Apple Inc. (NASDAQ:AAPL) shares have taken a nasty spill since the company initiated a dividend. However, for investors who believe the company will continue to benefit from the casual computer craze, now could be a good time to buy.
Gaining share?
Interestingly, Lenovo Group was the one computer maker that bucked the trend in the U.S. market. It has been making a fairly aggressive push here, so that isn’t surprising. Unfortunately, Asian markets were weak, leaving the company’s shipments effectively flat. However, as the company gains market share, it becomes a stronger competitor overall.
Revenues have been on a pretty steady upward climb, with the exception of a drop in 2009, so the company has done a great job navigating a changing market. More aggressive investors willing to back a foreign insurgent should take a look.
Getting out?
Hewlett-Packard Company (NYSE:HPQ) is also getting hit right now. That said, the company’s PC and printer businesses are the cash cows supporting the effort to move beyond making physical devices. It’s been a tough road for the company as it looks to follow International Business Machines Corp. (NYSE: IBM) into the services and software space, but new management appears to have the company heading in the right direction.
A series of tough “house cleaning” moves, such as writing off acquisition values and selling non-core assets, are actually healthy signs of improvement. The CEO has noted that there is still more to be done, but that just means there’s still more upside potential. The sell off on the PC news is a buying opportunity for those looking to find the next International Business Machines Corp. (NYSE: IBM).
Not dead yet
The PC isn’t dead yet. There are changes taking place in the industry, but some companies are going to survive and prosper. The three companies above look particularly well positioned for the future.
The article The PC Is Dead: Buy PC Makers originally appeared on Fool.com and is written by Reuben Brewer.
Reuben BrewerCopyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
