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Industry in 'denial' as demand for pricey PCs plunges

Today's low-cost computers are yesterday's high-enders, so why pay more?

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The question most taxing the minds behind the personal computer industry right now is how to persuade punters to spend their money not merely on new notebooks and desktops, but specifically on more powerful - and thus more expensive - machines.

All the evidence suggests they are currently not doing so. More problematically, they don’t need to.

IHS iSuppli, a market watcher, this week said it had found that only six per cent of the desktop PCs that have been and are yet to be sold this year are what techies might call a “performance” machine - a computer based on the latest processor, graphics and storage technologies. For notebooks, the figure is slightly higher: 9.2 per cent.

Instead, punters are focusing their interest on what iSuppli calls the “value” and “mainstream” segments - defined, respectively, as machines cost $500 (£314) or less, and those in the $500-1000 (£314-629) band - of the desktop and laptop markets. Each accounts for more than 45 per cent of the whole.

Of course, today’s low-cost computers were yesterday’s high-end machines, and it’s in the very nature of the computer business that a given amount of computing power becomes less expensive every two years of so, such is the rigour with which chip maker Intel - by far the biggest player in personal computer component supply chain - is working to ensure its co-founder Gordon Moore’s famous ‘law’ remains true.

That Moore’s Law might one day come unstuck has always been seen as a result of the limitations of the silicon chip production technique, called lithography, Intel and other chip makers have been relying on for the past 40 years or so. While there are real physical limits to how small transistors can be etched into a silicon wafer - you can’t yet make these tiny components out of anything less than a single atom, after all - other factors may play a part first.

Pushing technology down-market means that a cheap PC today can deliver the same performance that a top-of-the-line machine provided two years ago. Some software - games and professional graphics programs, for instance - still involve crunching plenty of numbers, but by far the majority of applications ordinary folk run no longer need the lastest, fastest processors or graphics chips.

Proof of that is the fact that so many of those applications - or versions of them - are being run on tablets and even smartphones.

Chip makers can no longer look to Microsoft to solve the problem by regularly updating its operating system with technology that demands the performance only the latest processors can deliver. Window 8 steers users toward a new user interface, formerly called Metro, designed to run small, phone-style apps that can present information, or allow users to generate their own, without the need for a state-of-the-art chip under the hood.

At the same time, Apple, which pioneered the lightweight tablet market, sells more iPads and iPhones than it does its Mac computers. In its most recent quarter, it shipped 4.9 million Macs but 40.9 million iDevices, almost ten times as many.

It’s telling that when Google’s latest own-brand phone, the LG-made Nexus 4, went on sale to today, the £239 handset rapidly sold out. Not so the cheaper, £200 laptop Google also started to offer today, this one made by Acer.

Quite apart from punters buying tablets instead of laptops and desktops, they are finding their existing PCs sufficiently powerful for the tasks to which they’re being put.

For their part, computer makers are finding they need to punch out fewer machines. According to Joanne Feeney, a semiconductor analyst with Longbow Research, Q4 2012, previously hoped to be a stronger quarter than the third, will actually be much the same, her notebook maker sources say. In place of growth in the region of 5-10 per cent, the market will be flat. That doesn’t bode well for the three months combining Christmas and the US’ Thanksgiving shop-a-thon.

Q4 will set the template. Barclays Capital‘s hardware analyst, Ben Reitzes, meanwhile, believes the PC market could decline for “many years to come”. He reckons consumers are making PCs last longer, adding an extra year or two onto the machines’ working lives - enough, he calculates, to knock 50-100 million units off annual shipment totals that have reached 350 million in past few years.

“After years of denial, most PC industry players still don’t seem to realise what is happening – and don’t have contingency plans,” says Reitzes.

Worse, they may be simply sticking their collective fingers in their ears and trying to carry on as before. According to Feeney, chip makers are busily cutting the price of their products to encourage sales. That, in turn, is pushing up inventories of unsold machines, from four or five weeks’ worth of machine to six weeks’. Supply is outstripping demand.

Intel, for one, is looking to Windows 8 to revive the replacement cycle and raise demand for pricier PCs containing its more expensive chips. It’s too early to say whether this will happen, but if even the new operating system’s own developer is promoting a tablet this Christmas - its own Surface product - this may not be a season of celebration for the PC industry. ®

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