Peak PC and Microsoft's dilemma

Here's the big question: Does the personal computer industry stabilize, and if so, where?

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O'Donnell acknowledged the crystal ball remain cloudy, but said it's certainly possible that the PC business might settle at 20% below Peak PC, or around 290 million systems shipped annually. "That could be the level, stable reality," O'Donnell said.

Neither O'Donnell nor Gillen was convinced that PCs would disappear or mutate to the point where they become unrecognizable, making the point -- long-argued by Microsoft and Apple, among others -- that there will remain tasks that more-or-less traditional PCs are better suited to handle than tablets.

"As people spend more and more time with tablets, I think they will come to realize that [tablets] are not really a PC replacement," said O'Donnell, taking the opposite side of the debate from Singh.

Longer replacement cycles

O'Donnell's faith in the survival of the PC, albeit at a reduced rank, is based on the belief that while replacement cycles have lengthened -- as users let more time go by before buying a new personal computer -- those cycles will eventually stabilize.

Of all technology companies, PC Peak has to be foremost in Microsoft's mind. That explains the urgency in Microsoft's shift to, in the refrain of CEO Steve Ballmer, a "devices and services" business model.

For Gillen, the de-emphasis of the Windows client under Microsoft's new strategy is a logical reaction to Peak PC. "The lost momentum [of PC shipment growth] means Microsoft was not able to grow its Windows client business," said Gillen, a big problem for a publicly traded company where financials are scrutinized every quarter. "But by putting the operating system businesses together, Microsoft can essentially offset the decline of the PC client with gains coming from mobile. It's a more holistic view."

Gillen was referring to Microsoft's announced reorganization, which will combine Windows 8, Windows RT and Windows Phone -- but not Windows Server -- into a single unit: the Operating Systems Engineering Group, headed by Windows Phone boss Terry Myerson.

Microsoft has time

And Microsoft has time to make the strategy work, Gillen maintained. "People are not going to suddenly stop using Windows," he said. "Windows will be around as long as PCs continue to sell. This takes some of the pressure off so they can focus on the longer-term [devices and services] strategy."

While Ballmer obviously never breathed "Peak PC" in his memos last week, or even mentioned the decline in PC shipments in those missives or in a conference call with Wall Street, he seems to get the dilemma. Why else would he hammer home "family of devices" as the firm's new tune, if not to replace what's been lost as PC shipments slide?

But getting it doesn't mean doing it, Gillen cautioned. "If PC shipments continue to show softness, it's going to require some very fancy footwork," said Gillen. "This is going to be a tough shift for Microsoft to make, to ask them to now accept that the world is a very different place."

This article, Peak PC and Microsoft's dilemma, was originally published at Computerworld.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2013 IDG Communications, Inc.

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