Microsoft's Windows 8 Release Coming: Is The PC Finally Dead?

Analysts note "severe slump," question the market's future viability.

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Is The PC Finally Dead? Three new reports show personal computer in decline.
Despite high hopes for Microsoft's (Nasdaq: MSFT) Windows 8, three new reports show a gloomy financial forecast for the personal computer.

As Microsoft (Nasdaq: MSFT) pins its hopes on Windows 8 to resuscitate a flagging market for PCs, new data from three separate market researchers indicates the product may not have a bright future.

After 11 years of growth (a number that includes laptops, notebooks, and netbooks in addition to desktops), PC sales have begun to drop off precipitously, according to three different analyst groups released Wednesday.

The fate of the personal computer has been debated since the advent of game-changing products like smartphones and tablet devices sacrificed marginal degrees of processing power for enhanced usability and mobility.

report from the market research group IHS (NYSE: IHS) iSuppli said 2012 PC shipments will decline 1.2 percent to 348.7 million units, down from 352.8 million in 2011.

"There was great hope through the first half that 2012 would prove to be a rebound year for the PC market," said Craig Stice, senior principal analyst for computer systems at IHS, in a statement. "Now three quarters through the year, the usual boost from the back-to-school season appears to be a bust, and both AMD (NYSE: AMD)  and Intel's (NYSE: INTC) third-quarter outlooks appear to be flat to down. Optimism has vanished and turned to doubt, and the industry is now training its sights on 2013 to deliver the hoped-for rebound. All this is setting the PC market up for its first annual decline since the dot-com bust year of 2001."

IDC, another researcher, said PC sales fell 8.6 percent worldwide in the third quarter, dropping 12.4 percent in the U.S. alone. Fellow researcher Gartner (NYSE: IT) reported similar results.

"This is definitively a crossroads for the computer hardware industry," said IDC analyst David Daoud in an interview with the Wall Street Journal. "It could be a make or break moment."

"There's less enthusiasm about PCs than there used to be," Stice added. "It doesn't seem that people get excited about computers nearly as much as the next iPhone or iPad."

The PC market was first revitalized in 2001 when hardware developers switched focus from desktop computer to laptops, a shift that changed PCs from family devices to PCs that users took everywhere, from work to school and well into leisure time.

But now in the face of a rapidly expanding tablet market, the personal computer industry is facing a new breed of competition entirely.

Hewlett-Packard (NYSE: HPQ) and Dell (Nasdaq: DELL) , the two olargest U.S. PC  manufacturers, both saw declining figures. In the third quarter, Gartner said HP sales dropped by 16.4 percent worldwide, while Dell sales fell 13.7 percent.

Even Apple (NASDAQ: AAPL), the world’s most valuable technology company, suffered. While it released new versions of the MacBook Pro and Air earlier this year and reduced the price on some models, the company still saw a 6.1 percent decline, according to Gartner. IDC’s research puts the number slightly higher at 7 percent.

Analyst predictions, meanwhile, did not see Windows 8 as being powerful enough to revitalize the entire industry.

"PCs are going through a severe slump,” said Jay Chou, a senior research analyst at IDC. "The industry had already weathered a rough second quarter, and now the third quarter was even worse. A weak global economy as well as questions about PC market saturation and delayed replacement cycles are certainly a factor, but the hard question of what is the 'it' product for PCs remain unanswered. While Ultrabook prices have come down a little, there are still some significant challenges that will greet Windows 8 in the coming quarter."

"Retailers were conservative in placing orders as they responded to weak back-to-school sales," said Gartner principal analyst Mikako Kitagawa in his firm’s release. "By the end of September, retailers were focused on clearing out inventory in advance of the Windows 8 launch later this month. On the professional side, there was minimum impact from Windows 8 in the quarter because the professional market will not adopt Windows 8 PCs immediately after the release."

Shares of HP, of Palo Alro, Calif., rose 12 cents to $14.30 in Thursday trading, just above their 52-week lows. Dell shares rose 7 cents to $9.51, also just above their 52-week lows.

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