Tablets and smartphones: Why PC vendors should panic -

The PC industry has very little going for it right now, with slow PC sales, rising component prices, government and businesses slashing IT spending leaving the end user to pick up the slack – right in the middle of a recession.

Bluntly put, 2011 has not been kind to the PC industry, and the outlook remains doom-and-gloom for 2012, which has prompted widespread cuts, slimming down of inventory, product cancellations, postponement, shoring up expenditure and a general caution for the first half of this year.

The UK, in particular, has felt the decline of the desktop PC, reflected by a sharp decrease in PC shipments in the last quarter of 2011. Notebooks and desktops slipped 19.6 percent year on year, according to Gartner’s latest data. In fact, most analysts are predicting that 2012 will be slightly worse in western countries than in emerging markets, PC-wise, so vendors are lumbering like the proverbial dinossaurs in the tar pits.

Continuing the trend, the consumer - not the enterprise - is driving technology consumption. In fact, the  consumer is driving it to such a point that we have given up on bulky desktop PCs and are willingly going for the much-prized smaller, handier and infinitely more portable tablet PC or smartphone without thinking twice.

"Despite aggressive pricing and special holiday deals for PCs, consumers' attention was caught by other devices, such as smartphones, media tablets and e-readers," said Meike Escherich, principal analyst at Gartner.

 

2012 – Year of the Tablet

While traditional PC integrators are struggling to make ends meet and support their enterprise customers and strategies, the tablet business has projected into the foreground a number of foundries, semiconductor- and fabless design businesses. Only a few notable exceptions in the PC world have managed to adapt and pre-empt the changing market conditions. Of these, Apple and Nvidia stand out the most.

Apple, living off the quasi-religious devotion of its followers, has had wild success with its iPhones and iPads. It is expected to announce on 7 March the iPad 3, which has left so far a slightly underwhelming feeling as rumours suggest it won't feature a new design of the iPad 2’s A5 SoC, but a tweaked version.

Fortunately for Apple, a lot of its customers don’t care about what goes on in the background.

Over 70 percent of Apple’s revenues now come from iOS devices such as the iPhone or iPad, and this does not even take into account iTunes revenues.

With desktop, server and notebook Macs now accounting for just 14 percent of the company’s total revenues, this adds more weight to the alleged Apple ARM notebook, forcibly hooking its fate to iOS.

It isn’t surprising that, of Apple’s record $46.33 billion revenues from last year, it made $13.06 billion in profit.

One of the most resounding names in the PC graphics industry - Nvidia - has also managed to navigate these dire straits by expanding its business concern into mobile graphics and then into system-on-chip designs based on ARM architecture.

Nvidia’s Tegra is now positioned shoulder-to-shoulder with the likes of Texas Instruments (OMAP), Samsung (Exynos), Qualcomm (Snapdragon) and Apple (A-series), and has raked in for the company, in 2011 alone, almost $600 million in revenue.

Nvidia will be announcing several Tegra 3-based products with its partners next week at MWC and expects the revenue growth in this segment to be a healthy 50 percent. Overall, the outlook is much more favourable today than a year ago when Tegra was still confronted with scepticism from handset makers.

So, what of Intel? Intel’s push into the portable business is coming to fruition with the forthcoming announcement of both smartphone and tablet PCs based on its Medfield design. Ironically, firmly rooted in the Intel and AMD rivalry, PC vendors will have Intel as their only option in moving into the tablet market without taking more risks.

Shipping through its traditional PC partners, the same ones who’ve struggled to shift into the tablet gear, this will be a once in a lifetime opportunity for the likes of Lenovo, HP, Toshiba, Dell and Acer to jump on the tablet bandwagon.

Even if you’re sceptical of Intel’s ability to pull off an x86 device like Medfield, don’t underestimate the depth of Intel’s pockets and the strength of co-marketing.

Two tablet PC vendors in particular have locked themselves in deadly combat, to the point where you can hardly distinguish the combatants: Barnes and Noble announced its Nook Tablet 8GB, which faces off squarely with Amazon’s Kindle Fire, same price, same specs, mostly the same of everything, at already affordable prices. Your choice of tablet will fall on your choice of book store.

 

The company formerly known as 3DLabs

One dark horse may surprise many onlookers sometime soon: ZiiLabs , formerly known as 3DLabs, a subsidiary of Creative Technologies, has penned a deal with the Chinese government to supply the HanZpad. Han, being Chinese for, erm, Chinese.

The HanZpad will be using an as-yet undisclosed homebrew Chinese OS and its own “stemcell” processor, the ZMS-40. The ZMS-40 is a quad-core ARM A9 design with an array of 96 “stemcell processors”, not unlike shaders on a GPU, that accelerate multimedia processing. It also benefits from having Creative X-Fi technology integrated into the hardware. On paper it puts the competition to shame.

If things come to fruition, the low-profile ZiiLabs has beaten age-old ARM licensees to the quad-core grail. This is really a testament to how fast and how easy it is to get in on a piece of the action.

 

Apps: Cheap and cheerful

In case you haven’t noticed, Microsoft and other companies have tried shoving widgets down our throats for a few years now, but it really hasn’t taken off. On tablets and smartphones, it’s a whole different story.

Probably one of the greatest assets handheld devices have is the cheap and cheerful software known as apps, and you’ll pardon us if we’re stating the obvious, but this can’t be emphasised enough: Apps are cheap and easy to use. They are the epitome of “dumbing down the user experience” and appeal to the lowest common denominator of computer users.

Apps also give you a tunnel vision of sorts, focusing your attention on one thing at a time, providing you with exactly what you want without distracting you with other odd bits and ends like desktop programs do. Apps are about the same price as a ringtone, but their use far exceeds that of a mentally unstable frog.

 

Mobility driving the industry

The tablet and smartphone business is also making an impact in the component industry. From TFT panel makers ramping up smaller screen production to R&D investment in new SoC designs, RF, baseband and storage technology, new players are surfacing and old ones are adapting to the best of their ability.

Tablets and smartphones are also a lifeline for many companies struggling to cope with overcapacity, stemming from over-optimistic desktop computer forecasts.

RAM manufacturing is shifting production to meet the demand of tablet PCs. Lower desktop memory margins have prompted this move and greater margins exist in ‘niche’ segments such as tablets and servers, where there’s a premium to be had.

Memory manufacturing companies are also investing in developing new technologies that will – one way or another – end up in the palm of your hand. Whether it’s ReRAM, MRAM or CMOx-based Flash, R&D money is going straight into these business units. Even Rambus has joined in on the action with its recent acquisition of Unity Semiconductor.

TFT panels, on the other hand, have become commoditised and shrunk panel makers’ revenues. The industry has been forced to walk a fine balance between innovating (OLED, AMOLED) and weaning consumers off ‘traditional’ TFT panels. It has managed it poorly. Samsung, Sony, Toshiba and LG are all suffering from having invested far too much and having commoditised the technology too quick.

But not all is bad news for TFT, if you’re willing to adapt. According to research firm NPD DisplaySearch, tablet PCs have accounted for a massive boost in TFT panel shipments. Apart from the smallish ‘Public Display’ segment used in interactive advertising, it is the single greatest boost to the industry which otherwise struggled with low margins and lower-still PC shipments in 2011.

DisplaySearch reports a 217 percent growth of TFT panels, year on year, for the 9+ inch segment, although 2012 will definitely put a spin on the metrics as 7- and 8-inch designs are growing in popularity with both Samsung and an alleged 8-inch Apple iPad.

Finally, ARM licensees have seen business booming as their system-on-chip designs are now powering just about everything handheld. Broadcom, Texas Instruments, Qualcomm, Samsung Electronics and even second tier Chinese contenders like Rockchip have found a home with the SoC.

 

So, why should PC vendors panic? 

Being the lumbering corporate giants that they are, PC vendors are like supertankers, slow to turn and very, very cautious about where they are navigating.

No chances are taken and the beancounters have the last word. While they have the budget to invest in developing new products they are wary to do so as it can cannibalise their own product lines, upset the supply chain and generally impact their bottom line.

PC vendors are also facing off with just about anyone willing to lay down their reputation in tablets and smartphones. A quick trip to Taiwan or mainland China will generate the necessary ODM engineering and manufacturing to come up with competitive products, so it is very easy to get in on the action.

Tablets alone are expected to reach around 100 million unit shipments in 2012, according to Digitimes Research and IDC, and this is purely the hardware side of things.

When you factor in smartphones or superphones, the revenues, even at far lower average selling points, and growth easily overtake anything the PC world has to offer. Now, add the entire parallel economy of revenues generated by app sales for both iOS and Android devices that keep developers’ tummies full and CEOs happy.

No wonder Microsoft wants to push WOA fast and hard. There is no other way to stay in the game.

Next week there will be plenty of developments as Mobile World Congress takes place in Barcelona, and if your business is selling desktop PCs, we'd recommend you put together a team and ship them off to Catalunya as fast as you can. Maybe you'll learn a thing or two.