By Greg Mills
Industries rise and fall. No matter how large the company, an eye has to be on the market, paying particular attention to revolutionary products. That the PC industry sees the Apple mobile revolution isn’t in dispute. The problem is, that try as they might, competing with Apple is very hard to do.
With HP now agreeing with Steve Jobs that the PC is dead and moving on to business applications and services, the world’s biggest PC manufacturing machine is now up for sale. Some analysts think the size and value of the HP PC manufacturing arm is too big for any one competitor to buy, so cutting it up is likely. Time is not on the HP side of the situation. The longer the process takes to spin off manufacturing HP PCs, the less the division is going to be worth.
First of all, the sales numbers on HP computers across the board is going to decline. If you are looking at PCs and you see an array of HP computers on display, you would naturally expect them to be sold at a steep discount as they are discontinued goods. The fire sale it took to move the TouchPad may be a foretaste of what happens to HP brand computers. PC sales are already very slow and the margin is only around 7% on HP computers anyway.
It appears Samsung may be sniffing around with the prospect of buying HP’s PC manufacturing business intact. If this is true, HP should take the money and run as Samsung is likely to have purchased the industrial version of the Titanic. Rearranging the deck chairs on the Titanic or changing the ships name wouldn’t slow down the sinking of the supposedly unsinkable. Leaking boats are doomed to sink and changing owners won’t plug the leak that is going to force the decline of the PC industry in general.
The underlying change in the computer industry from the desktop box or laptop PC to a mobile platform, iPad to be specific, is so fundamental nothing can be done to save the existing PC industry. The reason every player in the PC industry is making a best effort stab at matching iPad is that they know the end of the PC industry, as we know it, is in sight.
There may always be a market for a larger computer with a keyboard, screen and input device, but 10% of the existing PC market isn’t enough to support the entire existing Windows PC industry. When you consider the likely reduction in volume that is coming, it is no wonder HP wanted out.
I predict that only 1-in-5 PC style computers now in use, is likely to be replaced with a new PC and half of them will be new Macs, I expect 4-out-of-5 existing consumer computers now in use to be replaced by iPads over the next five years. This will happend during the normal product replacement cycle .
My daughter took my iPad to school yesterday as the class is beginning to study the stars. I have the app “Star Walk” on it and her teacher was absolutely amazed as the iPad was rotated around the star map changed to match the orientation of the device. She told the class that she has to get an iPad. When was the last time someone showed you an HP laptop app that generated so much excitement? Yeah, dream on HP.
The lesson ought to be learned early in business school, get out of declining industries as early as possible. The companies that are slow to respond to collapsing industries will take the worst hit. A good example of the way the decline of the PC industry is going to take place is well illustrated by Kodak.
Just as the PC industry was making a lot of money for a couple of decades with no end in sight, Kodak was selling film and film processing with no end in sight. The PC industry got a rude awakening when Apple launched the iPad, just as Kodak first saw the digital camera revolution unfolding.
Kodak has slowly declined despite Kodak brand digital cameras and tons of patents. It take a long time for prosperous companies that have led an industry to completely crumble. At this point the digital imaging patent portfolio of Kodak may be worth more than the company itself. While the brand name “Kodak” is well recognized, when was the last time you bought film or had a roll of film developed? The move of the computer industry to mobile will happen a whole lot faster than the obsolecence of film. Film took 15 years to be phased out, where as the PC will die out in half that time.
The pattern the PC industry is likely to accelerate, the razor think profit margins on PCs we see today will decline further to less than zero, as the market continues to rapidly shrink and PC manufacturers begin to fail and dump PCs on the market. If I had a lot of money to invest I would go long on Apple and short on any of the PC manufacturers. No matter how they squirm, Apple is going to eat them alive. The PC is dead and just doesn’t want to accept it yet. Steve Jobs is right again.
That is Greg’s BIte.