PC quarterly sales plummet, sharpest drop on record

PC quarterly sales plummet, sharpest drop on record

5:20pm EDT

By Bill Rigby

SEATTLE (Reuters) – Personal computer sales plunged 14 percent in the first three months of the year, the biggest decline in two decades of keeping records, as tablets continue to gain in popularity and buyers appear to be avoiding Microsoft Corp’s new Windows 8 system, according to a leading tech tracking firm. The huge drop over a year ago, the steepest since International Data Corp started publishing sales numbers in 1994, mark a new milestone in the apparent decline of the age of the PC as computing goes mobile via tablets and smartphones.Total worldwide PC sales fell 14 percent to 76.3 million units in the first quarter, IDC said on Wednesday, exceeding its forecast of a 7.7 percent drop. It was the fourth consecutive quarter of year-on-year declines.

That marked the lowest level since the middle of 2009, according to competing data tracker Gartner Inc, which published its own figures showing an 11 percent decline on the same day.

Both firms blamed the sales drop on fading sales of netbooks, the small laptops that have been rendered obsolete by tablets, and more consumer spending going toward smartphones.

“Consumers are migrating content consumption from PCs to other connected devices, such as tablets and smartphones,” said Mikako Kitagawa, an analyst at Gartner. “Even emerging markets, where PC penetration is low, are not expected to be a strong growth area for PC vendors.”

Microsoft’s new Windows 8 actually deterred potential PC buyers, IDC said, as users felt they could not afford touch-screen models required to make the most of Windows 8, even though the system runs equally well on standard PCs and laptops.

“People think they have to have touch, and they go look at the price points for these touch machines, and they are above where they want to be and they say, ‘I guess I’ll wait,'” said Bob O’Donnell, an analyst at IDC.

O’Donnell said other users were simply uncomfortable with the new Windows system, which dispensed with the familiar start menu and uses colorful ’tiles’ to represent applications.

New Microsoft operating systems usually boost PC sales, but the lukewarm reception for Windows 8 will likely mean an even greater drop in the market this year, said Jay Chou, senior research analyst with the IDC unit that tracks PC sales.

“Users are finding Windows 8 to offer a compromised experience that doesn’t excel either as a new mobile interface or in a classic desktop interface,” he said. “As a result, many users find a decline in the traditional PC experience without gaining much from new features like touch. The result is that many consumers are worried about upgrading to Windows 8, to say nothing of business users who are still just getting into Windows 7.”

Among manufacturers, Hewlett-Packard Co saw a 24 percent decline in sales in the quarter, but narrowly held on to its title of No. 1 global PC supplier, with 15.7 percent market share. Fast-growing rival Lenovo Group managed to keep sales flat and is now just behind HP with a 15.3 percent global share.

Dell Inc, roiled by plans to go private, along with rivals Acer Inc and Asustek, all saw double-digit declines in PC sales.

Apple Inc was not immune from the decline, as some sales of its own Macs appeared to be displaced by iPads. Its U.S. PC sales fell 7.5 percent in the quarter, but it held on to its spot as No. 3 U.S. PC manufacturer, behind HP and Dell.

Updated April 10, 2013, 7:47 p.m. ET

Computer Sales in Free Fall

Quarterly Shipments Drop 14% as Windows 8 Fails to Stem Advance of iPads

By IAN SHERR And SHIRA OVIDE

The personal computer is in crisis, and getting little help from Microsoft Corp.’sMSFT +2.26% Windows 8 software once seen as a possible savior.

Research firm IDC issued an alarming report Wednesday for PC makers such asDell Inc. DELL +0.14% and Hewlett-Packard Co., HPQ +0.45% saying world-wide shipments of laptops and desktops fell 14% in the first quarter from a year earlier. That is the sharpest drop since IDC began tracking this data in 1994 and marks the fourth straight quarter of declines.

Gartner Inc., IT +5.73% a rival research firm, estimated global shipments sank 11.2%, which it called the worst drop since the first quarter of 2001. Gartner blamed the rise of tablets and smartphones, which are sapping demand for personal computers.

Microsoft, whose software is on a majority of the world’s PCs, last fall introduced Windows 8, a completely overhauled operating system with touch-screen capabilities.

But there is little sign that buyers are responding. In a surprisingly harsh assessment, IDC said Windows 8 hasn’t only failed to spur more PC demand but has actually exacerbated the slowdown—confusing consumers with features that don’t excel in a tablet mode and compromise the traditional PC experience.

“The reaction to Windows 8 is real,” said Jay Chou, an IDC analyst, about the negative sentiment.

“The PC market is evolving and highly dynamic,” a Microsoft spokeswoman said. “Along with our partners we continue to bring even more innovation to market across tablets and PCs.”

Mr. Chou said not only has Windows 8 failed to attract consumers, but businesses are keeping their distance as well. Chief information officers at several companies echoed his opinion Wednesday.

Ricoh Americas Corp., which replaces about a third of its 17,000 PCs every three years and upgrades to the most current operating system available, said this year it is sticking with Windows 7, released in 2009. Tracey Rothenberger, the company’s chief operating officer, said the benefits of switching to the new software aren’t worth the effort of training employees to use it.

“I don’t think there’s anything wrong with [Windows 8],” said Mr. Rothenberger. “But I think there’s minimal value in the incremental changes that are there.”

Microsoft executives have said Windows 8 would take many months to catch on with consumers and especially with businesses that generate the majority of the company’s profits.

Mikako Kitagawa, an analyst at Gartner, wasn’t so quick to blame Microsoft for the industry’s woes, arguing instead that secular trends such as customer interest in touch-based mobile devices beyond PCs are playing a larger role.

“Windows 8 is the right direction,” Ms. Kitagawa said. “It will be a while before Windows 8 is adopted.”

H-P, the world’s largest PC maker, showed the steepest drop in global shipments in the quarter with a 24% decline, according to IDC. Dell, ranked fourth in world-wide shipments, posted a 11% drop as it makes headlines for grim financial troubles and efforts to take the company private.

Even Apple Inc., AAPL +2.04% whose products ignited consumer interest in mobile devices, may not be immune to the troubles. U.S. shipments pegged it as the third largest PC maker, though its results fell 7.5%, IDC said. By contrast, Gartner said Apple’s U.S. computer shipments rose 7.4% from the previous year.

The first quarter’s declines come after a particularly troubling run up to last year’s holiday quarter, during which industry researchers began sounding alarm bells that the PC market would post its first annual contraction in more than a decade. Meanwhile, tablets like Apple’s iPad flew off the shelves.

Many computer-industry executives hoped Windows 8 would spark a revival in their PC and tablet sales. PC makers have mounted a series of responses to the iPad, shipping an array of computers with new looks including portables that convert from tablet mode to a clamshell design with a built-in keyboard.

Microsoft executives have said to make Windows 8 computing devices more appealing, they are urging a wider variety of touch-screen computers and tablets at a broader range of prices than were available over the holiday season.

But consumers don’t appear to be responding and now analysts are expecting PC sales to suffer at least through the first half of 2013.

Carrie Soukup, a 32-year old tech support contractor living in Austin, Texas, is among the skeptics about the new software.

As she has been researching a new laptop she plans to purchase this year, she said a PC running Windows 7 was more appealing than the newer designs. “I’m not entirely thrilled with Windows 8,” she said. “There’s a lot of show I don’t see the functionality in.”

Other consumers, like Gene Elmer Munson, have held off buying PCs all together as they increasingly rely on mobile gadgets.

Mr. Munson, a 40-year-old human resources-and-finance worker, has a desktop, a laptop and a smartphone and 7-inch tablet powered by Google Inc.’s GOOG +1.61%Android software.

He bought the 7-inch Google Nexus tablet in December, and now finds himself using his laptop less and his tablet more, especially for personal work, including the novels he writes in his spare time.

“If I didn’t have a smartphone and a tablet I would have replaced it by now,” said Mr. Munson of his H-P laptop. “I don’t see myself buying a laptop in the foreseeable future.”

Roughly 350 million personal computers are sold each year, but combined sales of smartphones and tablets are dwarfing those PC figures.

People are expected to buy about 919 million smartphones this year, and IDC expects nearly 200 million tablets will be sold this year.

In another blow to Microsoft particularly, sales of tablets powered Windows 8 also haven’t been strong. Windows 8 accounted for only 1% of global tablet shipments in 2012, with its share expected to rise to 7.4% by 2017, IDC says.

Stephen Baker, an analyst at NPD Group, said the future for Windows-based machines is looking increasingly bleak. “In a PC form factor you won’t see Windows 8 with touch have any impact,” he said.

Meanwhile, few businesses are buying many more PCs, and when they are, they aren’t buying them with Windows 8—at least not yet.

Some corporate chief information officers say they don’t see a compelling reason to upgrade to Windows 8.

Barry Libenson, chief information officer of Land O’Lakes Inc., manages a fleet of around 7,000 PCs, and says the number “is increasing annually, but not by a significant amount.”

His company, on a three-year refresh cycle, runs the PCs on Windows 7 and doesn’t have plans to migrate to Windows 8 until either the performance of Windows 7 deteriorates, or if a licensing deal with Microsoft were to make cost a nonissue.

Windows 8 “will not be a driver for increased adoption” of PCs, he said.

IDC said companies have also begun extending the life of their computers. The firm noted many companies that used to buy new PCs every three years before the recession have pushed out their purchases to every four or five years these days.

The market’s troubles have been exaggerated by the dramatic corporate changes at H-P and Dell, which IDC said magnified negative trends. Rival Lenovo Group Ltd., by comparison, has been able to maintain its shipments worldwide, and actually increased its results in the U.S.

IDC said the market’s steeper-than-expected contraction may spur the firm to revise its worldwide shipment expectations even lower than the gloomy outlook of a 1.3% contraction for the year. IDC’s data doesn’t include shipments of iPads or any computers whose screens can be detached from their keyboards. Gartner said some hybrid laptops are included, but they still represent very small numbers.