Can Microsoft survive the coming PC apocalypse?

PCs sales are on track to have their biggest drop ever, down more than 10% in 2013 warns IDC. And there's no end in sight, with nearly a 4% drop projected in 2014. With its core business going south, is there anything Microsoft do in order to thrive?

IDC's forecast is grim, with sales dropping in mature markets as well as emerging markets, and for desktop PCs as well as notebooks and laptops. In 2013, IDC says, total shipments will drop to 314.2 million units from 349.4 million in 2012. By 2014, the number will decline even further, to 305 million.

IDC warns that well into the future, there is "little indication of positive growth beyond replacement of existing systems."

It's not just consumers who are curbing their buying of PCs. Microsoft's big mainstay, enterprises, are doing the same as well. IDC says that although enterprise buying will dip 5% in 2014, compared to 15% for consumers, "the long-term outlook for the two markets is not significantly different."

Given that Windows has by far the lion's share of the PC market, Microsoft will be hit worse than Apple, which has booming sales in tablets and phones.

Two factors are hurting PC sales: competition from tablets and phones, and the longevity of PCs, giving people no reason to upgrade. Jay Chou, Senior Research Analyst, Worldwide Quarterly PC Trackers at IDC, explains:

"Perhaps the chief concern for future PC demand is a lack of reasons to replace an older system. While IDC research finds that the PC still remains the primary computing device – for example, PCs are used more hours per day than tablets or phones -- PC usage is nonetheless declining each year as more devices become available. And despite industry efforts, PC usage has not moved significantly beyond consumption and productivity tasks to differentiate PCs from other devices. As a result, PC lifespans continue to increase, thereby limiting market growth."

Chou told Computerworld's Gregg Keizer that for Microsoft, the forecast is "pretty bad."

IDC doesn't count 2-in-1 devices -- combinations of tablets and laptops -- in its figures. Microsoft has been pushing those heavily, although there's no evidence that 2-in-1 sales are booming. Loren Loverde, Vice President Worldwide Quarterly PC Trackers held out some hope for Microsoft, though, saying that:

"The emergence of 2-in-1 devices designed to function in both clamshell and slate configurations -- many of which will run Windows -- along with Windows-based tablets themselves, is expected to provide some new volume for the Windows platform as well as the PC vendors and other parts of the traditional PC ecosystem in coming years."

Still, those numbers won't be spectacular, 39.3 million units by 2017. That's not going to save Microsoft.

What does all this mean for Microsoft? Clearly, it's going to survive. IDC estimates that approximately 300 million PCs will continue to sell each year well into the future. Although that's not a growing market, it is a stable one. Windows will likely continue to dominate PC sales, although Apple keeps chipping away at Microsoft's lead, and Chrome is starting to show strength as well. So Windows revenue will likely decline well into the future

That's why Microsoft so desperately needs to become a success in mobile. Without big phone and tablet sales, Microsoft will face shrinking Windows revenue, and in the long run potentially shrinking Office revenue as well, because it's not clear how much demand there will be for Office on non-PC devices. The company will still have big revenue and big profits, but unless it can figure out substantial revenue streams outside of Windows and Office, it could become a technology also-ran.

Copyright © 2013 IDG Communications, Inc.

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