Rising notebooks, setting desktops

Bill Gates once said: “I think it’s fair to say that personal computers have become the most empowering tool we’ve ever created. They’re tools of communication, they’re tools of creativity, and they can be shaped by their user.”

When Gates unveiled his vision of a “PC on every desk and in every home”, it was deemed a laughable concept by some sections of the market. Today, PCs are the lifeblood if the IT industry, but we have witnessed some highly significant changes in the PC landscape in recent years. The need for on-demand connectivity and mobility has driven the rise of notebooks, but where does that leave the traditional desktop computer?

The rise of notebooks

“In the next five years the traditional desktop will be replaced by the notebook,” according to Jeff Li, director at white-box maker Pioneer Computers. “On the high-end, desktops will keep going, but the mid- to low-end will be replaced by notebooks.

“We are finding that desktops are going in two directions: bigger and more powerful, and the other is smaller and smaller. The same is happening with notebooks which are getting smaller and smaller, with the price coming down too, but the price of higher-end notebooks has gone up,” added Li.

Henry Lee, notebook product manager at Acer, said: “In terms of growth, notebooks are in the double digits – around the 30 percent mark. For desktops that growth is flat, or maybe at three percent positive only.

“The price/performance ratio has really tipped to the point that the notebook is the first device being bought. Desktops are more for people wanting high-performance and people who like to tinker with the machine, such as gamers and PC gurus.”

Lee said a lot of the resellers are going with market demand and turning their attentions to the notebook market.

“Resellers need to understand the product so they can sell all of the features. Notebooks and desktops have more features than the average product,” said Lee. “Resellers can provide services and make sure they know the customer’s needs. They own the customer and need to offer extra value. If resellers know a customer’s warranty is about to expire, they should
cold call the customer.”

Lee echoed Li’s views, by stating that the future for notebooks is expanding in two directions, with bigger notebooks getting bigger and smaller notebooks getting smaller.

David Nicol, director of small business and consumer at Lenovo A/NZ, said the vendor has witnessed customers on the notebook side give more consideration to portability in the buying decision, with size and weight proving important.

“Professionals are becoming increasingly mobile and are looking for lighter notebooks with more battery life and products that can stand up to the tests they are put under. Less focus is on raw performance and screen size,” said Nicol. “With both notebooks and desktops, power consumption and the environmental impact is increasingly important. We are seeing more consumers take note of products which have environmental certifications.”

However, the desktop market remains strong according to Nicol, but the benefits of mobility is driving demand of notebooks.

“There is money to be made in notebooks and desktops for our resellers. They can make money on margin and for our partners it is a lot to do with the rebate program we offer. There is also an opportunity to make extra profit in providing their own services alongside our services, and peripherals, too. Margin can be boosted through selling accessories and we offer further rebates on accessories and customers get a more complete solution. Resellers can also offer warranty upgrades and our Thinkpad Protection Program enables partners to sell piece of mind.”

Nicol said every customer needs to buy PC technology and it is a starting point of any customer’s IT budget. “The deployment of PC technology is important to organisations and resellers can have conversations around services, manageability of solutions, peripherals and infrastructure,” said Nicol. “I think [providing notebooks and desktops] starts with having an understanding of the customers’ requirements. Notebooks and desktops are not commoditised products, so resellers can match the PC technology
with requirements.

“The desktop market will continue to be significant for the industry and our customers. The need for desktops will not go away, but the transition towards mobility will continue. The importance of notebook size and weight will prove increasing important,”
added Nicol.
Rob Kingston, group manager of commercial product marketing for the HP Personal Systems Group, said: “Looking at the overall IT market, we are seeing a robust [notebook and PC] market, with no slowdown in the channel. Some analysts are saying the desktop market is flat, but we are seeing that sector doing well.

“There has been strong uptake in the notebook business and we are seeing a small shift towards notebooks from desktops.”

Kingston highlighted that the majority of HP’s business goes through the channel and said there is a huge opportunity in the notebook and SMB spaces for the reseller community.

“The enterprise market is often about price, but the SMB space allows a value-add solution and resellers can make better margins. Resellers need to listen to customers and focus on the benefits for the customers and understand the customer’s
business requirements.”

Kingston said the majority of the value-add in the desktop space is around managed services and taking the pain away for the SMBs who don’t have the skills to manage their own infrastructure.

“There is still a place for the desktop, but if you were going to look at the solutions that will replace desktops you could suggest Citrix and thin computing. The transition towards notebooks is for the mobile workforce and employees being able to work 24/7,” added Kingston. “Overall, the market’s products are moving towards faster, better and smaller. For desktops it is all about virtualisation, with VMware growing 200 percent year-on-year. For HP our focus is on notebooks, thin clients and the education space.”

Matthew Tumminello, A/NZ product marketing manager at Toshiba, is firmly in the notebook camp and said the vendor has been heavily investing into notebook technology in recognition that people want more mobility from life and work.

“We introduced the world’s first industry standard notebook in 1985 and today, notebooks are fast becoming a strong substitute for desktop PCs. After years of targeting business users only, the notebook is now also the consumer’s “personal computing” tool of choice – outselling desktops three to one in the consumer market,” he said.

“Desktop PCs are less relevant in a world that is more networked, connected, mobile and 24/7. These days notebooks are powerful, reliable and power efficient – making the transition from desktop PC to notebook increasingly feasible for those in need of powerful computing tools.”

Technology advances such as WiFi and 3G mean people can stay connected wherever they are, whenever they want, according to Tumminello, who went on to explain that docking station technology also allows users to use their notebook like a desktop when
they need the functionality of a separate keyboard and screen.
“The evolving look and feel of notebooks means they are increasingly popular amongst the fashion and image-conscious Generation Y. Notebooks have gone from conservative, grey-coloured boxes to flashy, multi-coloured style icons, and these days notebook users increasingly view their notebook as an extension of their personality and lifestyle. Desktop PCs don’t come close to meeting the “cool” factor of notebooks – further driving the transition to notebooks at the expense of the outdated desktop PC,” he added.

Frank Colli, managing director of reseller Leading Solutions, said: “As a percentage of unit PC sales, notebooks are taking an increasingly larger proportion of PC sales each year, particularly in the corporate sector. In the 2007 financial year notebooks represented 50 percent of all PC unit sales. In 2006, the percentage was 38 percent and in 2005 it was 33 percent.

“This growth effectively means corporations are now providing notebooks throughout their workforce and not just limiting their use to senior management and sales people. We see the key drivers for this change being the lower cost of notebooks and the push for increased employee productivity with staff given the ability to access the corporate network after hours from home.”

Colli said the reseller has witnessed employers offering more contemporary flexible working conditions, allowing employees to work from locations other than the office. As a consequence of this shift in corporate PC buying patterns, integrators are provided with opportunities to assist customers in improving network security, increasing network access and in providing remote hardware support.

“With our customers now having notebooks that may be scattered across the country or different parts of the world, they want fleet management solutions across continents and time zones,” said Colli. “Clearly the High Street is providing the notebook manufacturers with an outlet for considerable revenue growth and this sector is driving the technology convergence with the home entertainment industry. Corporations conversely look for better communications and system reliability at a price just above that of a desktop.”

Probably the most exciting change in the application of notebook technology is in vertical market software which is now providing real benefits to the mobile user, added Colli. For example, hospital emergency departments can now save considerable time by managing the patient admittance process from the ambulance in real time.

Analyst corner

So what do the unit counters at IDC and Gartner say about the future of the PC market? According to IDC, there was strong growth in the PC market in the fourth quarter of 2007. “Fourth quarter results show a very healthy PC market,” said Loren Loverde, director of IDC’s Worldwide Quarterly PC Tracker. “There is a lot happening with vendors repositioning their channels and going after new markets while falling prices and portable adoption continue to drive volume. Despite fourth quarter strength, projections for the next couple years anticipate slower growth. Rising concerns about economic growth are likely
to reduce expectations further, although we’re still likely to see double digit growth through 2008 and probably 2009.” The IDC assessment includes of PCs includes desktops, notebooks, ultra portables and x86 servers.

David Daoud, research manager of personal computing at IDC, said: “The results do not reflect changes in the fundamentals of demand. Consumers continue to be attracted by mobile platforms and are benefiting from the proliferation of channels and heightened competition, which continue to bring prices down. Going forward, demand could soften further if bad news over the economy persists and consumer confidence worsens.”

Recent research from IDC’s Channel Panel found the percentage of partners seeing increased PC business was up three percent in the third quarter of 2007, driven by a gain of 10 percentage points for partners reporting growing laptop business. Lenovo enjoyed strong results in the third quarter with more than 40 percent of partners indicating increased business. Acer also had a good showing for partners reporting increased business and the highest percentage of partners seeing more than 20 percent increases in business.

According to Gartner, worldwide PC shipments totalled 271.2 million units in 2007, a 13.4 percent increase from 2006.
Mikako Kitagawa, principal analyst for Gartner’s Client Computing Markets group, said: “Asia-Pacific took over as the second largest PC market during the fourth quarter. 2007 showed a clear indication of the worldwide PC market landscape: strong growth in emerging regions such as Asia-Pacific and slower growth in markets such as the United States.”

Hewlett-Packard was in a virtual tie with Dell for the number one position in worldwide PC shipments in 2006, and HP extended its lead in 2007 as it accounted for 18.2 percent of global PC shipments. “HP established a solid number one position in 2007. Robust consumer and mobile PC sales across all regions were two main drivers of HP’s overall growth,” said Kitagawa. “The company experienced the strongest growth among the top five vendors in fourth quarter of 2007, as its shipments increased 23.3 percent in
the quarter.”

To assess a notebook specific research, a release from DisplaySearch late last year, stated: “The PC industry is focused on the replacement of desktop PCs with notebooks. Prices for notebook PCs continue to decline while features continue to improve.”

The latest data from DisplaySearch showed that retail prices for notebook PCs declined 14 percent year-on-year in September 2007. Sub-US$1000 price points with the latest dual-core CPUs are no longer an exception, but rather have become the rule.

“Consumers and business alike are increasingly turning toward mobile platforms and away from the traditional desktop PC and monitor combination,” said the DisplaySearch release. “Also of increasing importance to traditional consumer electronics and computer retailers are accessories. Competition is aggressive, with pressure on margins and the increasing penetration of club and warehouse stores into this space.”

So the number crunchers are in agreement with most of the main vendors. The desktop cannot hope to maintain the sort of growth that the notebook is witnessing. The most significant shift is the thinking of the end-user. No longer do they look to buy a desktop first, then buy a notebook later. The notebook has become the first port of call for PC purchases.

The SMB market is also playing an important role in the shift towards notebooks. Mobility is an important issue for a number of SMBs and when they can get all the functionality they need from a notebook, they have more reason than ever before to invest in notebooks over desktops.

There is still a need for desktops. Their growth remains flat, but they haven’t plumped into obscurity in the wake of notebook growth. The high-end will still be demanding desktops and not every vertical of the market needs constant mobile access. Resellers looking to succeed in the PC landscape should be adaptive to the specific needs of their customers. Not all end-users will be after notebooks over desktops, and vice-versa, and resellers should be alive to the opportunity to provide both PC mediums.