PC Shakeout Looms - Gartner

Could it really happen? Could a third of today's top PC makers today be out of the business in three years, including some names synonymous with the PC, such as Hewlett-Packard and, amazingly, IBM, which practically invented the PC?

Yes, it really could. IBM is expected to announce next week that it has reached an agreement in principle to sell its PC unit to a Chinese PC maker.

Mind you, HP and other companies haven't indicated any such plans, but according to a bold report from Gartner, it's practically inevitable that others will follow suit.

Why? Essentially, the PC market is saturated, with soft sales growth year over year. There are some positive trends: Small business purchases of PCs are up over last year, and the continuing move toward home-entertainment-based PCs should help matters on the consumer side. But Gartner forecasts a drop in the expected replacement cycle; by 2006, most users—particularly the crucial high-volume enterprise buyers—are likely to have what they need for a while.

Read between the lines, and what emerges is a product that has become a low-margin commodity not very interesting to the likes of IBM and HP. They'd rather sell services, high-end platforms, and consumer electronics for far better returns.

Computer firms aren't helping their own cause, either: While Gartner says price and service will eventually be the only two ways that PC makers can distinguish themselves, a recent survey by the Computer Respect Group finds that computer products companies are dropping the ball on service.

So, where is the PC market headed? Think consumer gadgets. PC makers such as Dell, Apple, and Gateway have already been diversifying into consumer electronics with results ranging from decent to wildly successful. Concurrently, much of the work on next-generation PCs revolves around ways to tie them closer to the living-room experience and improve the presentation of graphics, such as the Cell chip that Sony, IBM, and Toshiba have been perfecting. Even PC components are getting into the mix, with hard drives looking for a home in your next car's dashboard.

The spreadsheet and word processor may not go the way of the TRS-80 or PC XT, but Gartner is probably right that the PC market on display today is not the one you'll see in a few years.

(Updated December 3, 2004.)