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Turning the market on its head

Jon Tullett
By Jon Tullett, Editor: News analysis
Johannesburg, 23 Apr 2012

Apple CEO Tim Cook announced the “post-PC era” during the launch of the third-generation iPad earlier this year, highlighting the tremendous growth of the iPad in particular, and tablets in general.

Many feel Cook was over-exaggerating the demise of the PC - nearly all “real work” is done on traditional PCs and laptops, and tablets are executive toys and consumer stocking-fillers, not laptop replacements. Right? Maybe not. Trends in the PC world show startling changes over the last few years.

Let's start at the top, with Dell. The computer manufacturer held the number one PC spot (in terms of shipments) for six years, from 2001 to 2006, if you discount the HP-Compaq merger, which briefly brought HP back into top spot. In 1997, with Dell on the fast track to the top, Michael Dell famously suggested that if he were in charge at Apple, he would “shut it down and return the money to the shareholders”.

Fast-forward to 2006, and although Dell was still on top of the PC market, Apple's fortunes had reversed and Steve Jobs got in a snarky jab at Dell, circulating an internal memo noting that Apple's market valuation had just topped Dell's. “Team, it turned out that Michael Dell wasn't perfect at predicting the future,” he wrote.

Fast-forward another five years to 2011, and Dell has slipped to third place in PC shipments, with Michael Dell apparently in full retreat, declaring that Dell is “not a PC company”. The company is now pushing hard into data centres and cloud services, as is its traditional PC rival HP, up against the big guns of IBM (which evacuated the PC market in 2005, selling that business to Lenovo) and Oracle.

Dell: it's all enterprise

Since Dell's acquisition of gaming PC company Alienware in 2006, its acquisitions have been focused on enterprise computing, storage, networking, and cloud computing:
ACS (services)
AppAssure (business continuity)
ASAP Software Express (software licensing)
Boomi (SaaS)
Clerity (legacy migration)
Compellent (network storage)
EqualLogic (network storage)
Everdream (SaaS)
Exanet (network storage)
Force10 (networking)
InSite One (medical archival)
KACE (systems management)
Make (cloud and legacy app migration)
MessageOne (SaaS)
Ocarina Networks (storage)
Perot (consulting and services)
SecureWorks (security services)
SilverBack Technologies (infrastructure management)
SonicWall (security)
The Networked Storage Company (storage)
Wyse (thin client/cloud)

So the top player has experienced a reversal of fortune, but how much of a factor was Apple? After all, the iGiant's turnaround happened thanks to consumer devices like iPods and, later, iPhones, not PCs. Apple might be the world's most valuable company today, but it's still solidly out of the top five on Gartner's PC shipments charts. In fact, the last time it was there at all, in position number four, was in 1996.

Actually, the numbers may be even worse than the charts suggest. Gartner does not include mobile devices like tablets in those numbers: they are counted as mobile devices, not PCs.

But what is a PC? If it's a personal device you compute with, then perhaps you should be counting netbooks and tablets in that shipment index. Counting tablet devices as PCs, Apple holds 17% of the PC space, according to market research firm Canalys. Suddenly, Apple, in the space of two years, has gone from nowhere to top spot. That market share is expected to decline slightly as Android devices (many manufactured by companies who are also big PC players, like Asus and Lenovo) make inroads against the dominant iPad, but nowhere near enough to dislodge Apple from the number one position.

In other words, in the space of a handful of years, the historically dominant number one PC company has declared it is “not a PC company”, and the defunct also-ran has taken top spot. If that isn't revolutionary, what is?

Of course, not all analysts are happy to lump tablets in with PCs. Most still categorise tablets as mobile devices, and track them separately from PCs. “Analysts resist including tablet numbers because it makes things very complicated, after 20 years of a very cosy paradigm,” says Arthur Goldstuck, MD of World Wide Worx. “Tablets don't disrupt that paradigm, they overturn it.”

But the separation does still make sense, Goldstuck maintains, since tablets are not being bought to replace PCs the way laptops did - they're still seen as luxury items rather than devices for doing real work. However, he notes that applications are being rapidly retooled for touch interfaces, and with projects actively promoting the use of tablets in schools, we are facing a generation of computer users whose first computing experience is via a touch screen. A trend of tablets replacing PCs is far from unthinkable.

Post-PC and into the data centre

The post-PC revolution, if that's what it is, hasn't put Dell and HP up against the wall. Both companies are making strong progress in the data centre, enterprise application and cloud spaces. HP has had a healthy presence in the data centre for a long time, and Dell, coming from behind, has accelerated its acquisition process, picking up more than 25 companies in the last five years, mostly focused on non-PC lines of business.

“We started that shopping spree a few years ago, and over the past two to three years we've transformed into a solutions company,” says Kobus de Beer, enterprise brand manager at Dell South Africa. “The acquisition of EqualLogic [2007] was the start of the migration to being a solutions provider, not just a hardware vendor.”

The company's reputation as a hardware vendor has been hard to shake, he says, and the local operation has “tried to focus on customers' pain points before we talk about technology”, in order to shift discussions away from PCs and towards data centre solutions. “As a company we still have a focus on hardware, but there's also a really big focus on applications, efficiency, and on workload-specific solutions,” De Beer says.

For Dell, the aggressive acquisition-fuelled march into the data centre has shown signs of promise, with non-PC revenue up around 30% over a five-year period, while PC revenue dropped nearly 6%, at the same time as the company dropped two places in the market share index - three if you include tablets.

In South Africa, those revenue shifts are playing out in similar fashion, De Beer says. “We're definitely seeing enterprise business becoming a bigger part of our revenue. Storage is an especially big driver for us.” Quick access to newly acquired technology is helping, he says. “In the past, products from companies we acquired took time to filter into SA, but now we're on the first phase for launches. When we acquired Compellent, SA actually closed the first EMEA sale.”

The evolution makes sense: as the mass adoption of mobile devices alongside PCs (with “instead of” on the cards) continues to accelerate, the backend infrastructure which delivers data and services to mobile devices is booming too.

But the next graphs of market share for personal computing devices may be markedly different from today's graphs. It only takes a couple of years for a disruptive technology to flip a whole marketplace upside down.

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