More Fears Confirmed, Tablets Bite Into PC Sales (IT, AAPL, GOOG, HPQ, DELL)

Following on its observations that tablet devices and smartphones would hurt PC sales, Gartner Inc. (NYSE: IT) has lowered its forecast for worldwide PC sales for this year. The IT research company  says that PC sales will hit 352.4 million units in 2010, up 14.3% from 2009, a drop of more than 3.5% from its September forecast that sales would grow 17.9% in 2010. The company also expects PC sales in 2011 to reach 409 million units, up 15.9% from 2010 levels, but again a drop from its September estimate of 18.1% growth in 2011.

The correction is “due in no small part to growing user interest in media tablets such as the iPad” from Apple Inc. (NASDAQ: AAPL), according to Gartner.  The company thinks that 10% of PC sales could be lost to tablets and smartphones by 2014. Apple’s iPhones and smartphones using the Android operating system from Google Inc. (NASDAQ: GOOG) are becoming an increasingly as complements to, and ultimately substitutes for, desktop and laptop PCs. This is not especially good news for PC makers like Hewlett-Packard Co. (NYSE: HPQ) and Dell Inc. (NASDAQ: DELL), both of which struggling with getting new smartphones and tablets into the market.

According to Gartner, emerging markets will take more than 50% of the worldwide PC market by the end of 2011, with the added danger that many emerging market consumers will “leapfrog PCs and move to alternative devices.” Going forward, Gartner says, “Over the longer-term, users are likely to slow PC replacements and extend PC lifetimes as they turn to other devices as their primary computing platform.”

Gartner also notes that desktop PCs will come under pressure over the long-term from the growth in “hosted virtual desktops, which can readily use other devices like thin clients.” These devices now include a host of low-cost netbooks, but the bigger threat probably looms from Google’s anticipated release of its Chrome operating system, which has been delayed again beyond the fourth quarter of 2010.

The idea behind the Chrome OS is to provide users with a fast-booting system that uses little battery power and provides strong security because there is no local data nor any locally installed applications. The big “if” in this scheme is whether or not Chrome OS is interoperable with Android, Google’s hugely successful smartphone OS. So far, Google’s been focused on getting Chrome ported to netbook-type devices. That’s not a winning long-term strategy unless there is some way for Chrome devices to inter-operate with Android devices. Let’s face it, netbooks are yesterday’s news.

Are the PCs days numbered? It’s very likely that PCs will continue to rule in volume, but the steady decline of innovative applications that require a PC could relegate the device to a (rather large) niche that requires high performance and not quick and easy access to the internet. For that, we’ll all be using smartphones and tablets.

Paul Ausick