In a recent report, IT research firm Gartner provided an interesting insight into the future of the device business. Highlights included more warnings about the death of the PC, the rise of Google Inc (NASDAQ:GOOG)‘s Android, and alarming troubles for Microsoft Corporation (NASDAQ:MSFT) and Research In Motion Ltd (NASDAQ:BBRY).
Welcome to the post PC era
Worldwide device shipments are projected to grow 9% in 2013 to 2.4 billion units and 2.9 billion by 2017. However, the composition of those shipments are changing drastically.
Traditional PCs like desktops and notebooks shipments are expected to decline 8% in 2013 to 1.9 billion units. Of course, this isn’t a temporary event due to troubled economic conditions but a secular trend driven by changes in consumer behavior. As we’ve seen echoed in other reports, sales are under pressure as customers choose to delay replacement and increasingly substitute PCs for smartphones and tablets.
Tablet shipments are projected to dominate, growing nearly 70% in 2013 to 197 million units driven primary by lower prices and increasing capabilities. Emerging market customers are also increasingly choosing tablets over traditional PCs as a companion to their smartphone.
Mobile phone shipments are projected to grow 7.5% in 2013 to 1.9 billion and to 2.1 billion units by 2017.
There’re also signs of increasing consolidation in the operating systems powering these devices. By 2017, Gartner projects a three-player oligopoly led by Android, Windows, and iOS.
The Androids are here
The number of Android devices are expected to grow 73% in 2013 and Gartner projects to total number of devices shipped could hit 1.5 billion annual by 2017. By 2017, Android could power 50% of all devices.
Why is Android so well positioned? Last year, more than 50% of U.S. mobile subscribers had a smartphone and penetration has hit similar levels in other developed economies. This means most of the industry growth will be driven by price sensitive late-adopters. Android is attractive to these customers because the platform is the cheapest in the marketplace. Google gives away the operating system for free and the hardware can be easily commoditized by manufacturers.
Mr. Softy treading water
Gartner projects Microsoft Corporation (NASDAQ:MSFT) will continue to pick up market share from smaller rivals as the industry consolidates to three operating systems. Microsoft Corporation (NASDAQ:MSFT)’s market share, as a portion of global device shipments, is projected to grow from 15% to 20% by 2017.
There’s some evidence this is occurring already. Earlier this week, Kantar Worldpanel announced Windows had taken third place in the U.S. smartphone industry based on February sales data. The platform also made noticeable gains in Britain, Australia, and Italy.
However, Microsoft Corporation (NASDAQ:MSFT) is too reliant on its core PC applications business. The shift to mobile threatens the company’s traditional cash-cows like its Office applications. Microsoft Corporation (NASDAQ:MSFT) isn’t expanding but shifting revenues from PCs to tablets and phones.
Big trouble for BlackBerry
Gartner’s report also hinted at major troubles in Waterloo projecting that Research In Motion Ltd (NASDAQ:BBRY) will ship 30% fewer units by 2017. The company is more limited than Microsoft Corporation (NASDAQ:MSFT) because consumers are looking for an operating system that works across the board including tablets, smartphones, and PCs. BB10 can’t save Research In Motion Ltd (NASDAQ:BBRY). One device no longer makes a company but rather the ecosystem the business creates around several devices.
How likely are these projections to play out? Well 2017 is a long time frame to be forecasting in the technology business. Four years ago Windows and Research In Motion Ltd (NASDAQ:BBRY) had just toppled Palm and Symbian. It’s still too early to count out the Canadian firm until we see some more data regarding the company’s Z10 launch.
However, this report does highlight the pressure on Research In Motion Ltd (NASDAQ:BBRY) to build out an ecosystem of products. A slick handset won’t be enough to compete. Even more troubling, as consumers become increasingly glued to one platform, gaining market share will be more difficult today than ever.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft.
