HP reported earnings this afternoon, and once again the news was bleak, with overall revenue down 8%.
You can hash the numbers any way you like, but the trends are clear. The PC market is getting crushed by tablets. In fact, I think we've reached a tipping point that will mean the near-total collapse of the consumer PC market within three years. By mid-2016, consumer PC sales will be less than half of where they are today. Probably way less.
Let's start with HP. Consumer PC revenue fell 22% from last year, faster than commercial (business) PC revenue, which was down only 3%. Notebook unit shipments fell 14%, faster than desktop shipments, which were down only 9%. How clear can it get? When consumers are looking for new portable computers, they're increasingly turning to tablets from other vendors, not notebooks from HP.
Dell, which reported earnings last week, saw similar results. The weakest link in Dell's earnings was End-User Computing (PCs), which saw a revenue drop of 5%. Within that category, mobility revenue -- that is, laptop and tablet sales -- dropped 10%.
But what about Lenovo? Isn't Lenovo crushing it in the PC market?
Yes and no. Lenovo is growing market share, its notebook revenue grew almost 5%, and, against current trends, its absolute number PC shipments increased in the Americas (thanks largely to Brazil) and Europe. But overall, even Lenovo shipped fewer PCs than last year, according to IDC.
At the same time, Lenovo's revenue from mobile phones and tablets more than doubled from last year, as did its shipments of smartphones in China. No question where its growth lies.
I cannot find a single solitary shred of evidence, or any directional trends, that suggest the PC market will slow or reverse its decline. In fact, all the evidence points the other way.
Computers are lasting longer than ever. Storage is getting cheaper and storage bounds are disappearing, especially as people start to offload files to the cloud. There's no new killer app that requires a PC upgrade. There's no necessary new networking technology that requires a new computer. Consumers don't care about the expiration of Windows XP next year. Windows 8 is an excellent desktop operating system, but not better-enough than Windows 7 to cause people to throw perfectly good Windows 7 (or Windows XP) PCs away. (Its main advances are in touch, which is yet-to-be-proven as a desirable feature on traditional PCs.)
In a telling interview with the Wall Street Journal, Lenovo CEO Yang Yangquing admitted that the company expected PC unit sales drop this year, so it increased on selling higher-margin PCs instead: "We knew the overall market was declining, so we gave our team a guidance saying that they should try to sell more high-end products. If you can’t drive growth, you should pay more attention to margins."
That's a lot like the Apple strategy. It keeps margins on its Macs high, knowing that people buy them rarely as their primary workhorse computers. It sells a range of iPads at lower price points for more casual portable computing.
That looks a lot like the future of the consumer computing market to me. Personal computers will be a relatively expensive high-end product that people buy every five or seven or 10 years, when their old one breaks or becomes absolutely unusable. Sort of like big-screen TVs. Some of those PCs will be notebooks, but people won't use them portably as much as moving them from room to room around the house.
For everything else, people will buy tablets. The second (and third, and fourth) computer in every house will be a tablet. Every kid's first computer (after their smartphone) will be a tablet. If you take a computer on vacation, it will be a tablet. Eventually, the computer most of us take on work trips will probably be a tablet, too. (Whether it runs Windows, OS X, Android, iOS, or something else -- that remains to be seen.)
Forget the netbook, which is already dead and buried. The mid-range consumer notebook is going away, too, and faster than anybody thinks. That means any computer company without a viable tablet strategy will be in deep trouble.