By Ramdas S, CRN, November 23, 2011, 1500 hrs
The personal computer is now 30 years old. Over the past three decades it has revolutionized the IT industry which made it reach nearly one-fifth of the world’s population. The fortunes of IT majors such as Intel, Microsoft, Dell, HP, Acer and Apple were built around the PC. However, with the recent rise of the tablet and the smartphone, the PC as we know it has started losing its charm.
Following HP’s decision to quit the PC business—which the vendor subsequently reversed—there has been widespread speculation whether the PC is a thing of the past. IBM, which introduced the PC in 1981, and exited the business to focus on the more lucrative services and software business in 2004, reiterated that it believes that the PC era is over. (This through a post on the IBM Smarter Planet blog by Mark Dean, CTO of IBM Middle East & Africa, and one of the designers of the original IBM PC.)
During the iPad 2 launch, the late Apple CEO Steve Jobs also stated that the future belonged to post-PC products such as smartphones and tablets. Even Dell issued a statement following its Q32011 results that the PC industry was sluggish and that margins were falling.
Does this mean we are heading for a post-PC era? Is the tablet the future of computing? Should PC partners worry about it?
Shrinking margins
Most Indian IT channel players have been wary of the PC business over the past few years, and have expressed resignation that most partners sell PCs because they need to keep customers happy and engaged.
Some of the large systems integrators and solution providers have taken the decision to exit the PC business altogether or scale it down to less than 25 percent of their business. “Last year, we decided to quit the PC business which contributed 60 percent to our topline. We only supplied to some pending projects. As a result, our topline dipped by around 28 percent during the fiscal. We felt that to sustain a decent bottomline it was important for us to reduce our dependence on PCs,” says Prateek Garg, CEO, Progressive Infotech.
Declining margins are said to be the reason why HP took a call to exit the PC business. According to its SEC filings for the last four quarters, HP’s topline from the PC business was about $40 billion, and its net was estimated to be about $1.8 billion, which meant an average margin of 4.8 percent—much less than the double-digit margins of its other divisions. Its a different thing though that the new CEO, Meg Whitman has now reversed that decision.
Sachin Rao, CEO of the Bengaluru-based Archos Technologies, estimates that a partner would make 2-5 percent in a large deal involving PCs. “When it’s a transaction-based deal, where there’s no special value addition, the margins are wafer-thin. If it’s a dollar transaction, the margins could be as low as 5-10 dollars per PC. To keep a customer engaged, the partner may insist on providing the first level of support—but it could also mean that a single service call could negate the margin made on a PC.”
Lower PC growth
Through the eighties, nineties and even the first decade of this millennium, the PC market has grown steadily in double digits. However, in the past two years, the annual growth rates for the PC industry as a whole have shrunk to single digits. In June this year IDC lowered its expectations for worldwide PC shipments in 2011, predicting only 4.2 percent YOY growth instead of the earlier projected 7.11 percent.
The primary reason IDC gave for this downgrade was the proliferation of media tablets and smartphones with applications powerful enough to replace PCs. “Consumers are recognizing the value of owning and using multiple intelligent devices, and because they already own PCs they’re now adding smartphones, media tablets and e-readers to their device collection,” explains Bob O’Donnell, Vice-president, Clients & Displays, IDC. “This has shifted the technology share of wallets to other connected devices.”
The tablet threat
In August, market research firm UBS, which does exclusive studies on the tablet and smartphone market, updated its tablet sales forecast for 2011 to 60 million. The number is noteworthy as it’s one-sixth the size of the PC market that’s projected by IDC to be about 360 million units. UBS expects the tablet numbers in 2012 to be 80-90 million units. It took the PC almost a decade and half to reach the 100 million mark; UBS says the tablet may take only three years to touch that figure.
Yet most analysts are cautious about the growth of tablets. “We do not expect a complete takeover of PCs by tablets. There will still be several hundred million PCs sold worldwide for several years because people will still need PCs for certain tasks. However, there are several applications for which we use PCs today that can be more easily done with tablets. Besides, tablets are easier to carry around, and are definitely trendier,” says Vishal Tripathi, Principal Analyst, Gartner India.
The most influential vendor in the tablet space is Apple. The vendor sold nearly 15 million units of its iPad during 2010. “Apple has been the trend-setter so far, and is definitely driving the post-PC computing revolution,” adds Tripathi. The company is said to have sold around 9 million units of iPad during Q22011, and is projected to sell close to 40 million during 2011.
Following Apple’s success, almost all other PC vendors have tried emulating it by launching their own tablets. Dell and Acer were the first to do so. HP acquired Palm in 2010 to launch its own tablet. However, lack of interest from consumers has forced HP to shelve its plans and look for a buyer for its WebOS —the operating system for the PDA—division.
In India so far there are no clear statistics about the size of the tablet market, but industry pundits estimate the numbers to be at the maximum of 25,000 units a month. “In India we have not seen the kind of traction that’s being noticed globally. The price of the tablet, which is more than that of a netbook, and the lack of quality 3G in several parts of the country, could be two of the reasons,” says S Rajendran, CMO, Acer India.
There are several who believe that the tablet market is all set to take off. “When the netbook was introduced in 2007 there were few takers, but then the market slowly started to lap it up. The hype surrounding tablets is hundred times more than that which surrounded netbooks,” says Sandeep Parasurampuria, CEO & Director, iBall. The company recently launched Slide, a tablet which has actor Hrithik Roshan as its brand ambassador. Parasurampuria hopes to sell 75,000 units by the end of the current fiscal.
Meanwhile, with the launch of the Aakash tablet—in a project promoted by the National Mission on Education through the Ministries of Communications & Information Technology and Human Resource Development—a new price-point has been set. Aakash is expected to be priced at Rs 1,500 and would be made available to 504 universities across the country.
Canada-based Datawind, which won the contract for manufacturing Aakash, is set to launch a Rs 3,000 commercial version. “It will also function as a mobile phone. We are aiming to sell around 300,000 units of the commercial version in FY2012-13. We have established a new production line in Hyderabad to manufacture these low-cost tablets,” says Suneet Singh Tuli, CEO, Datawind.
Not everyone is impressed by the low-cost solutions. “We can ship 7” tablets starting as low as Rs 4,500, but I do not believe there exists a consistent market for such devices, or that they would replace PCs totally,” says Harish Kumar, CEO, Connoisseur Electronics, Bengaluru.
The biggest problem with tablets is that while they can be used for simple applications such as quick messaging or browsing the Internet, users will need a PC for most other applications. Bengaluru-based Unified Stickman had run a pilot project for a leading Indian multinational to migrate one of its departments from PCs to tablets. “While the TCO studies were definitely in favor of tablets, there were practical issues. User feedback was that several applications were more tedious on a tablet than on a PC. Consider writing a really long email of more than a dozen paragraphs and you will see why a PC still makes more sense. Similarly, if a user needs to create presentations and complex spreadsheets he would see the issues with a smaller screen tablet. If you are a developer, or a power user, then the tablet is definitely not your choice,” says Satheesh Nair, CEO, Unified Stickman India. He adds that the multinational decided to abandon the project till larger screen devices were available.
Others argue that as a PC replacement a 10” tablet is always recommended. “[But] a 10” tablet would be priced on par with a netbook or an entry-level notebook which is definitely more powerful and more functional. So where’s the benefit?” questions Sunil Kumar, CEO, Lampo Computers, Bengaluru.
While most enterprise channel partners agree that tablets are a game-changer, they do not expect tablets to replace PCs. “We have still not seen any indication from our customers that they would like to replace PCs with tablets,” says Neel Shah, Director of Insight Business Machines, Mumbai.
L Ashok, CEO of the Chennai-based Futurenet Technologies, feels that at this point of time tablets will not be a threat, but will be complementary to the personal computer. “You’ll be surprised to note that tablets are bringing new and critical users to information technology. For example, there’s this CEO of a corporate who was not at all comfortable with computers; then he tried an iPad—and is now hooked on it. Tablets will add new users, and create demand for fresh applications and uses.” Ashok stresses that for corporates to start using tablets widely there needs to be better enterprise-class applications. “Is there a shrink-wrapped version of SAP client for any tablet platform? Are there good, strong client applications for other platforms? Customers would like to see such applications.”
Shah is of the opinion that beyond PDAs and tablets, the threat to PCs comes from changing computing paradigms. “Many of our customers are very serious about desktop virtualization and cloud computing, technologies that make the PC and PC-operating system really irrelevant. If the present pilot projects succeed, there would be mass adoption of both VDI- and cloud-based apps within enterprises—and I feel enterprises would choose thin clients over PCs.”
Partners are also wary of the Bring Your Own Device practice that’s being explored by some MNC companies. “Many organizations are providing the choice of client devices to their employees. Depending on company policy they also fund a portion of the acquisition cost. Since the applications are secured in a virtual environment, it really does not matter to the enterprise whether an employee connects with a full-fledged PC or a thin client or a tablet,” says Shah of Insight.
Some in the industry point to niche applications—such as in healthcare, retail and education—that would be tablet-friendly and that would drive their use. “There are several segments today where the PC is considered cumbersome, and where tablets may fit in. These are new markets and not PC-replacement options. For example, a retailer can book orders through a tablet with his distribution executive, and a doctor doing the rounds in a hospital can access online patient records on his tablet,” says Ashok.
The ultrabook factor
One of the main casualties of the impact of tablets and smartphones on PCs is chip major Intel. Since most tablets use processors from ARM, Qualcomm and Nvidia, Intel has decided to take on the tablet brigade with the ultrabook.
According to Intel, ultrabooks, which incorporate new CULV Intel processors with integrated graphics and flash-based SSDs, have five hours of battery life, mainstream performance and ultra-fast start-up.
In a press statement, Intel said that the ultrabook is the future of the notebook PC as we know it, and that ultrabooks will have 40 percent market share in 2012. “The ultrabook is yet another PC form factor which will expand the market. We are betting on ultrabooks bringing in new customers and spurring technology refresh in certain segments,” says N Sivakumar, Vice-president, Strategic Marketing, Product Management & Service, DS Division, Toshiba India.
Conclusion
Sivakumar says that the PC era is far from over. “They predicted the end of the PC when thin clients were launched, and also when netbooks and smartphones came along. I believe tablets will add more customers to the IT landscape, and that there may be a few new users who first buy a tablet and then start using a PC.” He says that all form factors will co-exist, and that the market will continue expanding—an assessment many in the channels think is accurate. |