Is the PC Dead?
By John MacWilliams, Bishop & Associates Inc.

In August, HP announced it was analyzing whether to exit or spin off its PC business — although now, they may be reconsidering that possible move. Steve Jobs announced he would retire and has stepped off stage at Apple. Growing competition between the iPad, e-readers, and notebooks signals a potential shift away from laptops, at least in the important consumer segment. The industry continues to change, cycle, consolidate, and mature. But does this mean that death is imminent?

This is an important subject, because of the huge product volumes derived from this industry. Many connectors owe their creation to PC applications, and sales of these products depend on the future health and leadership of this market. The industry is also the embodiment of the outsourcing/contract manufacturing and global supply chain movement that has transformed the electronics industry to include electronic manufacturing and design services companies.

In Michael Malone’s recent editorial in the Wall Street Journal, “Steve Jobs and the Death of the Personal Computer,” he suggests that the end is near, explaining the evolution of the PC industry in non-technical layman terms — and focuses on Apple’s role in it. Here are some compelling facts about the current state of this industry:

• The PC remains one of the most important inventions ever and will continue to be a vital appliance.

• For several years, notebook PCs have outshined desktops in both business and consumer markets.

• Mobile computing has been taken to a new level with handheld devices, wireless mobility, and the Internet.

• Apple has become the design leader in the PC market — and is in the process of redefining it.

The lesson here is that innovation is alive and well, nowhere more so than in PC markets. It’s just that the next input will be different than the last, and few companies seem to have the ability to lead when innovation is disruptive to existing business.

For most of its existence, the PC industry has been led by Microsoft and Intel — MSFT on software and operating systems, Intel on the CPU and generally dictating PC hardware design. Both companies are world-class, and the tech boom would not be the same without their leadership. But what has evolved from this duopoly is a semi-commodity marketplace, where hardware OEMs become marketeers, outsourcing design and production to Asian original design and manufacturing specialists. This generates constant volume increases and inexorable price decreases fueled by industry standardization. Intel (and AMD) get to sell millions of chips, and MSFT makes multi-millions on its software. The real game, now, is what happens after these players have reached dominance and the market starts to shift under their feet.

In earlier stages, the PC freight train overwhelmed Apple, who had been the original rising star in this industry. But as the desktop market, and perhaps the whole industry, began to mature, a curious thing happened: Apple began to re-emerge as the industry leader. The company did so with a combination of innovation and hype, in hardware, software and applications, in marketing, and world-class industrial design. Apple too outsourced production, but kept a tight grip on design. Its prices remain substantially higher than those of PCs (discounting their exceptional software), even though the current crop of PCs is improved, as is the latest MSFT Windows OS, Windows 7. With Apple you pay more, but you get a lot for your money.

Apple was able to do this by creating a vast consumer technology and apps market, leveraging the younger, tech-savvy generation. What has transpired with Apple under Jobs’ leadership is a decade-long series of blockbuster products: 

• iMac

• iPod

• iTunes

• MacBook

• iPhone

• iPad

Apple hooked up with Intel because it was expedient visa-vis Intel’s CPU leadership. It made concessions to MSFT’s software dominance, but the company maintains its own stamp on its products. The genius of Jobs is three-fold:

• Design blockbuster products using impressionable, value-conscious, young consumers as a launching pad.

• Develop world-class, user-friendly software, complete and turnkey with killer applications.

• Integrate hardware and software into a seamless Infotainment appliance that extends beyond “rote” PC operations, opening up new worlds of hardware and applications beyond, way beyond, the PC.

That Apple has been able to do so with minimal business market penetration says a lot about how electronic markets have changed.

So, where are we, and what impacts will this transformation have on the electronics supply chain?

Many suppliers have moved on to other markets as the PC industry became outsourced, prices went down, and the comfort zone with OEMs disappeared. Others have maintained their position via strong product development and low-cost production.

The center of gravity for this industry, both in production and demand growth, is now in Asia. Most large multinational suppliers have long ago set up shop in China and Southeast Asia, including manufacturing, engineering, market management, and distribution organizations. Customers are less OEM and more ODM and EMS-oriented.

There are also bright spots in connector design: the latest socket designs with LGA 2011 or more pins, USB 3.0 and what this will generate in new peripherals, the success of Serial ATA, and emergence of solid state drives. HDMI has been a major success and is now everywhere. Thunderbolt is the latest innovation, and at 10Gbps should have a long, successful existence if the mistakes of Firewire licensing are not repeated. Many of these connector products are being downsized to “mini” and “micro,” creating new opportunities.

Apple’s succession of blockbuster products has benefited its suppliers, including Foxconn, who has vaulted from a $1B connector maker to their leading EMS supplier, with sales heading toward $100B.

Apple, under new leadership with Tim Cook, will have to find its next killer applications, but it still has time. The cumulative aura created by its recent product successes will last for some time to come. We are guessing that the publishing industry and a new iPad will be in the near-term. While these “apps” have already started, there are yet worlds to conquer in the vast media/publishing sphere — i.e. the ultimate instant Information Age.

HP’s waffling on its decision to spin off the PC market, even as they remain the market share leader, is understandable. While it signals something that HP sees in the marketplace — or perhaps an admission that they have lost the technology lead to Apple, time will tell on this saga. HP has a lot at stake here, including its important printer business. HP is a fine company and will pass through this period. Its suppliers must wait and see.

Looking at the landscape of other PC makers, we see the following:

• Dell seems to have refocused on more profitable business PCs and servers.

• Acer has had some market share problems and needs to distinguish itself from the pack.

• Lenovo has refocused on the fast-growing Chinese marketplace.

• Sony makes fine products and has a multimedia presence, but needs to rekindle innovation.

• Toshiba remains a player in notebooks but it’s also not an innovation leader.

• Asus (eMachines + Gateway) and other Taiwanese companies may pick up where others leave off.

So, there is a lot going on here. One must have great admiration for all the efforts, by thousands of participants in this industry, to get the PC industry to where it is today. But the future is uncertain. Names will change. The Next Big Thing will evolve from this industry. But we can be certain that that thing, whatever it may be, will be enabled by connectors. Overall, the personal computer function, albeit whatever hardware implementations take place, will continue to be an invaluable part of our everyday lives.

John MacWilliams Senior Consultant and Analyst, Bishop & Associates Inc. John MacWilliams' experience includes a long career in the electronic components industry. He is TWG chairman of the connector roadmap for the International Electronics Technology Roadmap, and principal of US Competitors LLC. He is the author of many articles and reports on the connector industry, and a graduate of Lehigh University in Bethlehem, PA.