Windows 10 booms as PC sales collapse

 

Ever since Windows 95 launched, PC manufacturers have looked to new operating systems from Microsoft as a way to boost sales. Microsoft’s OS launches often have a push/pull effect on the market; the company’s decision to phase out Windows XP support resulted in a sales bump for the struggling PC market last year, as businesses finally bought new hardware and phased out the ancient operating system. Analysts have been predicting for months that Windows 10’s free upgrade policy could actually drag the PC market lower as consumers opt for in-place upgrades over new OS installations. These predictions are bearing fruit. Windows 10 may be surging, but PC sales have cratered.

According to the analyst firm IDC, worldwide PC sales are now expected to drop by up to 8.7% with a 1.1% drop in 2016 and a possible mild recovery in 2017. The consumer market, however, is expected to be even worse; IDC has no idea when or if PC sales in the consumer space will recover but projects declines through 2019.

The PC perfect storm

PC sales began to dip when tablets exploded, led by Apple and the original iPad. For several years, conventional thinking has been that PC sales were falling because tablets and smartphones were surging. Instead of upgrading older systems, consumers were opting for different devices altogether. This explanation no longer fits as well, given that IDC also expects tablet sales to fall 8%. What’s happening to the market as a whole?

PC market predictions (IDC)

There are multiple factors at work here. Recent currency fluctuations in China and the beating the stock market has taken over the past week are partly to blame for IDC’s worsening projections. The other problem, however, is the rise of so-called “good enough” computing. For decades, the PC market roared ahead thanks to rapid improvements to single-threaded performance from companies like Intel and AMD. The so-called multi-core swerve gave the industry a further boost for several years, since consumers could easily see the advantage of a dual-core or quad-core system over older single-core hardware.
Both of these trends have now run their course. The last Intel CPU to deliver significant, across-the-board improvements over its predecessor was Sandy Bridge, which launched in 2011. Intel has held its core counts steady for the past six years, which means programmers have had little reason to optimize consumer products for more than four cores. AMD’s CPUs may offer more threads, but AMD doesn’t command enough market share to move the dial as far as CPU development trends are concerned.

This trend isn’t unique to the PC space. Year-on-year improvements in tablets and smartphones haven’t stopped, but power consumption and thermal limits often prevent modern hardware from running at full power for more than a handful of seconds. Vendors have eagerly soaked up every improvement in battery life and efficiency by offering chips with higher burst modes and screens that draw more power and generate more heat. The result of these trends is that a smartphone from 2012 is much more useful in 2015 than a 2009 device was in 2012.
PC vendors like HP and Dell love to crow about their latest ultrabook or 2-in-1 designs, but these systems typically sell for over $1000 and account for a distinct minority of total PC sales. Average laptop selling prices are typically between $400 – $500, and if you examine the hardware in that category, it’s hard to get too excited. The systems themselves still typically weigh in at 5-6 lbs, screen resolutions are low, and 5400 RPM HDDs are common. Discrete GPUs and SSD options (even for small drives) don’t exist in this category. At $400, that’s understandable, but a great many $500 – $700 systems have similar restrictions. If you’re an average shopper, in other words, the PC on the shelf doesn’t look dramatically better than the PC at home.
That’s not necessarily fair to vendors like AMD and Intel, who have made tremendous improvements in CPU and SoC power consumption since 2011, but the benefits of ultrabooks — high resolution screens, SSDs, and hybrid 2-in-1 architectures haven’t made it to the mainstream market. It’s little wonder that folks see small reason to upgrade.
It’s not clear how this will resolve. One option is that OEMs may embrace a hardware-as-a-service model, in which consumers rent PCs for monthly payments rather than purchasing them outright. Alternately, OEMs could turn to software sales and licensing to improve their own profit margins, though this would require them to first develop products and services that anyone wanted to pay for. With no sales recovery in sight, the PC market is primed for consolidations and mergers as vendors compete for pieces of an ever-shrinking pie.