PCs Evolving as Consumer Habits Change

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Apps and Internet connectivity are everywhere. At this year’s Consumer Electronics Show, you’ll see more devices incorporating PC-like functions. And not just smartphones and set-top boxes, but TVs, digital cameras and printers, as well.

And on the heels of Apple’s iPad, a wave of tablets threatens to steal market share from PCs. Forrester Research forecasts US tablet sales to reach 24.1 million in 2011 and by 2013 outselling laptops, according to Sarah Rotman Epps, a Forrester analyst.

Given these trends, everyone involved in the PC ecosystem—hardware vendors, software companies, chip makers—will feel the effects.

“Computing is evolving, and the companies that have built their legacy business on computers coming in gray boxes that run Windows have to evolve,” Epps says.

CES 2011 - Your Digital Life - A CNBC Special Report

But analysts warn against writing off the PC entirely.

“I’ve been hearing for the last 10 years that the PC is dead,” says Shaw Wu, analyst at Kaufman Bros. “I still think the PC market could be a decent growth market, but it’s going to come in new form factors.”

Changes on the Way

Mobility has been the key driver behind products like smartphones and the iPad. Consumers want much of the functionality they get with a PC when they’re on the go, but with more user-friendly touches.

PC makers are going to have to accommodate that demand. Apple has made the biggest step in that direction with the MacBook Air, an ultrathin notebook computer with the ability to turn on almost instantly from sleep mode.

“There are a lot of ways PCs are changing that’s influenced by phones and tablets,” Epps says. “Consumers are expecting an instant-on and always-on experience from their devices. Giving consumers that always-on connectivity that they are used to having in their smartphones is going to become more common in the PC.”

A key factor in the mobility trend is increased dependence on cloud computing—that is, storing and accessing data online rather than on a device’s hard drive. PC manufacturers have long relied on bigger and better specs—faster processors, more memory—to sell their products. But cloud computing renders much of that power unnecessary.

“That enables form factors like tablets, because you don’t need all this horsepower on a mobile device,” Wu says. “It’s about performance-per-watt. Performance is still important, but battery life is critical because these devices are not plugged in. Having the devices that use the least amount of power is going to be advantageous.”

That’s the approach Google is taking with Chrome OS, a Web-based operating system designed to run on low-powered notebooks with near instant-on capability and without spinning hard drives. Acer and Samsung will be the first companies to release Chrome OS notebooks later this year.

Challenges and Opportunities

Analysts say that most players heavily involved in the commodity PC segment, most notably Dell , have their work cut out for them. Wu maintains a Hold rating on Dell, noting that nearly all of the company’s revenue comes from PCs. But other hardware vendors, such as Toshiba and Lenovo , will also feel the effects.

“They’re certainly trying to adapt, to have a more consumer focus on style and design,” Epps says. “But it’s a big shift to go from selling a commodity product to something that’s more of a lifestyle device.”

Although it’s also identified with commodity PCs, HP earns a buy rating from Wu.

“The difference with HP is they can benefit from a lot of these trends,” Wu says. “All this content that everyone accesses through their notebooks, smartphones and tablets has to be stored and processed in the data center. HP is the Number One player in terms of infrastructure, and they’re going to take more share in the data center.”

Epps says graphics processor maker Nvidia stands to benefit from a computing environment that favors low power consumption.

“Companies like Nvidia that make ARM-based chips are on their way up,” Epps says. “Everyone has questions about how Intel will compete in that world.”

PC Growth in Emerging Markets

Not Dead, But Different

Despite shifting consumer sentiment, analysts say there are still some favorable market trends for PC makers.

“Here in the states, there’s an average of 1.4 PCs per household,” Wu says. “But where a PC used to be a shared device, you’re seeing a trend to where there’s one laptop per person in a household.”

CES 2011 - Your Digital Life - A CNBC Special Report

And there’s still plenty of room for growth in emerging markets, such as India and China.

“In the developing world, PCs remain the cheapest option,” says Stephen Baker, analyst at NPD Group. “And in developing countries, the cheapest option is going to win. In developing countries, PCs are extremely well positioned over that three- to five-year period.”

A few years ago PCs were expected to be the information and entertainment hub of the average household. That’s certainly not the case today with Internet-connected TVs and Blu-Ray players in living rooms and smartphones and tablets that allow you to work wherever you are. But PCs, particularly notebooks, will continue to be an essential part of the average consumer’s stable of devices.

“Consumers are becoming really savvy at making tradeoffs between different devices, and PCs are definitely still in the mix,” Epps says. “In five years, consumers will own more devices and more PCs, but PCs will play a different role in their lives than they do today.”

Look for CNBC's in-depth coverage of CES 2011 online and on-air, Wednesday, January 5 through Friday, January 7.

CES 2011 - Your Digital Life - A CNBC Special Report