Seeking Alpha
Long/short equity, contrarian, independent research, tech
Profile| Send Message|
( followers)  

In the recent article, "Dead Money Walking: Sell PC Players And Buy Apple Before It's Too Late" by David Alton Clark, the author suggests that investors sell their PC-oriented players and jump into buying shares of Apple (NASDAQ:AAPL) as quickly as possible. I have to respectfully disagree with Mr. Clark and urge the prudent investor to not follow the herd by selling the temporarily beaten down PC stocks.

Surprise! Apple Doesn't Want The PC To Die

It is interesting to note that there is a widely held notion is that the PC is going to die and that Apple wants to be its executioner. I'll get to why the PC isn't going to die a little bit later, but first I need to dispel the notion that Apple wants the PC to die. Ready? Straight from Apple's recently filed 10-Q:

"The Company's financial condition and operating results depend substantially on its ability to continually improve the Mac platform to maintain its functional and design advantages."

Clearly the company has a strong vested interest in making sure that its MacBook Pro, MacBook Air, and iMac lines continue to sell well. So saying that Apple's trying to kill the traditional PC form factors is a bit premature.

The PC Suffers From "Good Enough" Syndrome

In a weak macroeconomic environment, it is no surprise that discretionary spending gets cut. The big "issue" that is plaguing the PC ecosystem right now is that the PC component makers like Intel (NASDAQ:INTC), AMD (NYSE:AMD), and Nvidia (NASDAQ:NVDA) have done a fantastic job releasing power efficient, fast, and inexpensive products. But that's just it; the products that these companies have released are still "good enough" for people who just don't have the money to spend on new computers. So without any real "need" to upgrade for more performance, it becomes harder to convince people to spend limited funds on new PCs strictly for performance. Even Apple realized this, hence the push for a super-ultra high resolution screen in an attempt to give users an incentive beyond performance or even battery life.

However, a smartphone is different (for now). These devices are still quite underpowered, so there is still incentive in the near term to upgrade to new devices. Further, subsidies for new phones as part of a contract plan further stimulates an upgrade cycle in the smartphone space. Soon, though, phone hardware vendors will run into the point of diminishing returns because any real computational tasks will be delegated to the cloud (Apple's Siri is a great example of this).

How About Tablets?

While tablets (read: iPads) are "cool" and "hip", they will not serve as adequate replacements for the traditional notebook in their current forms. While Apple loves to sell customers a keyboard for $70 in order to restore the functionality of a traditional notebook (ASUS' "Transformer" keyboard accessory is equally exorbitant, but at least adds battery life) I don't believe such a business model is sustainable. For tablets to be credible replacements for low-end notebooks, attachable keyboards will need to become the standard. The lower margin players will likely be able to capitalize on this by offering cheap (or free) keyboards along with tablet devices.

To continue on this, the most likely threat to the low end notebook will be tablets running Microsoft's (NASDAQ:MSFT) Windows 8/Windows RT operating systems. These will be attractive to customers because they are running full, PC operating systems that act like PC operating systems when necessary. The nice thing is that Windows 8 also includes the very touch-friendly "Metro" interface for when the tablet is used in a more traditionally tablet manner. This will be the best of both worlds, and the sacrifice for the less-power-hungry user by moving to a Windows 8 tablet over a traditional Windows 8 notebook will be in cost and speed only, not fundamental usability.

With all the OEMs offering strong Windows 8 tablet solutions, it is not hard to see that Apple's virtual monopoly on the tablet space will very quickly erode. Android tablets haven't caught on primarily because they are neither "fashionable" like Apple's iPad nor practical enough to replace a traditional Windows-based notebook. If people really wanted to buy tablets and not just iPads because they're "cool", wouldn't Android tablet sales be better?

Conclusion

The PC's not dying, folks. It's evolving. Tablets and low end notebooks are on a collision course to converge, and the traditional hardware makers all have strategies to get their products designed into tablets going forward. But that's just a bonus! There will always be a strong need for more performance, more storage space, and better battery life in the traditional notebook arena. Notebook sales are in a "slump" now because times are tough and a good number of people can deal with waiting for next year's upgrade. Oh, and the upcoming release of Windows 8 has probably put people off from buying current laptop models, an example of the Osborne effect.

Source: The PC Isn't Dying: Don't Sell Into The Sensationalism