A little while ago we wrote an article here called "Winners and Losers In The Death Of The PC." The title was a little provocative and it drew strong reactions. However, the basic theme was that tablet sales are cannibalizing PC sales and that has important consequences for a number of vendors in both areas.
Basically, we argued that this development will proceed at the expense of those who gather their main strength in the PC arena, such as Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT), and benefit those who have a strong position in the tablet space. Needless to say, the latter includes Apple (NASDAQ:AAPL), but also companies like ARM Holdings (NASDAQ:ARMH), Qualcomm (NASDAQ:QCOM), Nvidia (NASDAQ:NVDA), Texas Instrument (NYSE:TI) and Samsung (OTC:SSNLF), for the reasons spelled out in that article.
We got quite a bit of a rap from people who argued that tablets are not a replacement for PC's. There is something to be said for that, but it depends how far you are willing to stick your neck out. Things are moving fast, consider the following:
Apple even sold more iPads last quarter than HP sold computers- and HP is the world's top PC maker.
Now, it could just be these sales are additional to PC sales, we'll find out soon enough as the replacement cycle gets underway in the PC market. However, here is what Gartner (a technology research outfit) had to say:
Gartner said in a report Thursday that it believes that the tablet and mobile device market has sucked away some of the functionality from traditional PCs.
One category of PC's has already buckled though, the netbook. We're hardly the first or alone at predicting the slow demise of the PC, much more notable people have argued something similar. Here is Ray Ozzie:
There should be no argument: the days of the PC as the primary computing device are over, Microsoft's former technology chief said.
Apple also has been rather vocal about its aim of replacing the PC:
Cook took direct aim at HP, Dell, Acer and Lenovo in terms of units vs. the iPad. Apples and oranges so to speak? You bet. But Apple clearly sees the iPad as a way to hit its PC competition.
And needless to say, the company is well placed to profit from this:
Cook started by talking about the "post-PC revolution," in which the PC is just another device, rather than the center of your computing life. Apple has three such devices: the iPod, iPhone, and iPad. Last year, Cook said, Apple sold more than 170 million "post-PC devices," which accounted for 76% of the company's revenue in the last quarter.
Just a consumption device?
Another criticism came from those arguing that one couldn't do serious work on a tablet. Apart from the fact that one could buy decent bluetooth keyboards for the iPad, or that at least one of the other tablets comes with a keyboard dock and superb connectivity (the Transformer Prime), there is progress also on the software front:
Apple is trying hard to get us to see the iPad as more than just a consumption device. It clearly wants this to be a viable option for more and more users to consider instead of a laptop. As such, on Wednesday, Apple showed off major updates to its iWork, iMovie, and Garageband apps, and it launched the iPhoto app for iPad at $4.99 (undercutting the newly-launched $9.99 Photoshop Touch app). Apple is essentially holding these up as examples to show what the iPad can do as a creation machine.
Another objection was that tablets aren't interesting for business. Although early days, we think that there is a considerable chance that tablets will also conquer the business, rather than just the consumer market. Here is the technology/business site zdnet:
every systems integrator is building mobile interfaces to SAP applications to handle the needs of field sales, executives in meetings, and normal joes like us.
For those not familiar with this, SAP offers the backbone of business information systems called enterprise resource systems (ERP). The same article also addresses another advantage of the (Apple) tablet:
How do I support tablets while protecting my company's policies? The new iPad will have a better answer to this question as well. Why? Because the security mechanisms of partitioning the tablet, running a snappy browser over a 4G network, or sandboxing each business app with its own end-to-end safe zone will just work better with a faster network and more powerful hardware. There's much work to do on the part of your security and network operations teams, but the ultimate answer to operate tablets safely is to protect data end-to-end with a redesign of the security and access architecture.
But perhaps the most telling part is in the following:
A surprising amount of companies are using iPads, with Apple saying last October that 93% of Fortune 500 companies have deployed or are testing iPads. Considering that it usually takes forever for technology to be adopted in the workplace, the iPad has gained traction with CEOs bending IT departments to their will. No doubt we will see even more companies getting interested in the device with this new edition.
That was last October, by the way. Things move fast in the technology world. That doesn't mean there aren't any issues to sort out:
In its current state, an iPad running iOS 5 (the latest version) cannot be issued software patches, cannot prevent users from updating software to the newest releases, cannot provide direct screen-sharing for troubleshooting issues. Maybe most importantly, IT can't push a pre-set "image" of configured apps with pre-installed data. All of these factors make for a somewhat scary proposition when it comes to deployment.
But the same article also argued the following:
However, when you go into the nitty-gritty of actually setting up an iPad for the enterprise, there is a surprising amount you can do without putting in much effort.
There are more than 7,300 business-focused applications currently available for the iPad, and many of them are good-to-excellent touch-based versions of their desktop counterparts.
It's still early days and very much a work in progress, but early adoption of tablet computers, even in business, has been large and there is no reason to believe these early problems cannot be ironed out. Perhaps the arrival of Windows 8 gives another boost with this respect:
A lot of IT directors are anxious to get early models to test in their shops because these Windows 8 tablets can run in both Metro mode and traditional mode- an important feature for businesses that want to run current Windows apps
And since there will be a version of Windows 8 running on ARM type processors, this might only be good news for Microsoft, not necessarily good news for Intel. And others, like Jeffrey Wilson ask an important question:
Now, what would you rather have in your bag, as you're bobbing and weaving between travelers: a business laptop (which typically weighs between 3 and 6 pounds) or a 1.3-pound iPad 2? If you don't mind working on a touch screen (or are using a Bluetooth keyboard), the choice is simple. The App Store has an incredible software catalog that transforms Apple's slate into a highly capable productivity device. In fact, there are apps available to meet nearly every business need
Perhaps the most alarming news comes from one of the top tier PC makers, Acer (OTC:ASIYF). Without tablets like the iPad (and Acer's own excellent Transformer), no doubt the sleek new category of laptops called ultrabooks would be the latest hit.
However, the competition from tablets is apparently so intense that they see themselves forced to adapt pricing schemes ($799 ultrabooks) that give them no margin. What's more, Acer's Global President Jianren Weng promised a $499 ultrabook by 2013 to match the price of Apple's iPad.
We therefore see little reason to change our initial thesis that, unless they can take the tablet market by storm (they've left that pretty late already), Intel and Microsoft are going to suffer by the inexorable replacement of many PC's by tablets. And perhaps not only the PC market is in danger:
Analysts were scrambling to praise the company for its near-total leadership in the growing tablet market and gauging Apple's potential for disrupting everything from the traditional PC market to game consoles, set-top boxes, and the consumer cloud.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.