Two years ago, analysts began worrying that consumers would stop buying PCs. While their warnings may have been a bit overblown, it certainly does seem that vendors are increasingly reluctant to make PCs.
Over the past year, Dell has gone private, Samsung has pulled out of the European PC market, Sony has sold off its PC business, and now Hewlett-Packard has declared its intention to spin off its PC and printer business into separate companies. And that probably won't be the end of it, analysts say, as the industry further consolidates.
So which manufacturer will flinch next?
As profit pressures force PC companies to re-evaluate their commitment to the PC, the big will get bigger: Both Dell and Lenovo, for example, are in "good places right now," and aren't looking to sell, says Pat Moorhead of Moor Insights. Nonetheless, the betting line right now says that Acer and Asus, despite their differences, will be forced to merge interests, and that Samsung will eventually pull out of the PC market entirely in favor of tablets, says Bob O'Donnell of Technalysis Research. Toshiba is also willing to sell its PC division, O'Donnell said.
What this means: While consumers still want to buy PCs--and the cheaper, the better--there's an increasing feeling that any profit remaining in the PC market is draining fast. Even in 2011--the last time HP pitched a PC spinoff to Wall Street, which demanded the head of chief executive Leo Apotheker in return--the argument was that a company like a Hewlett-Packard could sit down with a Ford, State Farm or Delta Airlines and convince those companies to buy a soup-to-nuts package of notebook PCs, servers, software, and services, thus providing more value than a PC-only company.
While companies like Lenovo may still be able to make that argument, smaller, less nimble companies may not see it that way. HP, ranked second in the world in PC sales, estimated its operating margins for HP Inc. (its proposed printer/PC spinoff) at 9.4 percent. That's not too far behind the 10.2 percent margin enjoyed by HP Enterprise. But at smaller, more cost-conscious competitors, pricing pressures are going to be far more intense. And that's already giving some PC makers cold feet.
So now what?
That doesn't mean that the PC is necessarily headed for the scrap heap, or even the dollar store. Global PC shipments will decline by 3.7 percent this year to 303.5 million units, IDC reported in August, revising its previous forecast of a 6 percent decline.
Ironically, according to O'Donnell, the PC itself has weathered the storm. "There's a whole lot of runway in business PCs," he said. "I think the thing about tablets replacing PCs is now officially dead."
Nonetheless, analysts expect the number of PC makers to diminish over time, begging the essential question, Who blinks?
The answer will probably not be found among vendors who appear in the top five rankings of worldwide (or even regional) PC vendors. Instead, the vulnerable manufacturers are larger consumer electronics brands that have maintained only a toehold in the PC market. We're talking names like Toshiba, which has found success in consumer electronics, but said in September it would lay off 20 percent of its PC workforce and refocus on business PCs. Ditto for Vizio, which thought, perhaps erroneously, that it could find the same success in the PC market that it did in consumer televisions. Even Acer and Asus are expected to merge.
"Acer and Asus are having immense challenges to the point at which the industry is challenging their viability," Moorhead said. "Neither Acer or Asus have a broad commercial PC line, aren't the low-cost leader, nor are they the brand leaders. It's a very challenging position to be in."
Of course, history is littered with hardware manufacturers that have exited challenging markets: Digital Equipment Corp., Silicon Graphics, and Sun Microsystems immediately come to mind. And, lest we forget, IBM sold its PC business, then its server business, to Lenovo.
What's interesting, however, is that there doesn't seem to be an heir apparent waiting in the wings to snap up the companies that get cold feet. Yes, Lenovo, Dell and others may eventually acquire smaller players. But when a hardware category transforms into a mere commodity, it's Asia--Taiwan and China, especially--that usually become the manufacturing hub.
So, assuming that Taiwan's Asus and Acer can't make a go of it, that leaves Lenovo (based in Beijing), and little else. At this point, there simply aren't any Asian companies--even companies like Founder or Great Wall, which have had strong presences in China but are no-names elsewhere--that are ready to step in, O'Donnell said.
As for HP, analysts have already said they expect HP PC prices to rise, and for more successful rivals to paint the HP breakup as the road to the company's eventual demise. Of course, Meg Whitman, HP's chief executive, doesn't see it that way.
HP found "strength" as a combined company, but now is the time to break up, she said during a conference call on Monday. "In our business, like every other, the market doesn't stand still, and you have to speed harder and faster every single day," she said. "Being nimble is the only path to winning."