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The PC Is Not Dead

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Stacy Smith, Intel's (Nasdaq: INTC  ) CFO, recently presented at the Citi Global Technology Conference. His key message: "We see an unprecedented demand for computing out there."

Smith said the chipmaker's available market is expanding dramatically, as a fundamental shift is happening right now in which more and more devices are computing and connecting to the Internet. This trend, in turn, drives growth in both the PC and server markets. And we're not talking small potatoes here; Intel estimates that in the next five years, its market will grow from hundreds of millions of units to billions of units.

There's an economic phenomenon that's driving this growth: In multiple emerging markets, the weeks of income on average that it takes a consumer to be able to afford a computer is declining rapidly.

In China, for example, it was 175 weeks of income on average for a person to be able to afford a computer in 1995. But Chinese income levels have been rising, and the cost of technology has been declining. By 2010, it was less than eight weeks of income on average for a Chinese consumer to be able to afford a computer. This is a fundamental shift.

Penetration rates -- the percentage of the population in a market that has a computer -- rise as weeks of income goes down. This is to be expected -- as technology becomes more affordable, more people in a market purchase that technology.

In the U.S., for example, as weeks of income dropped, there was a rapid increase in penetration rates. This same trend was true in Western Europe and Japan. What's notable is that when those markets crossed over the eight-weeks-of-income mark during the mid-'90s, PC sales exploded.

There appears to be a phenomenon that occurs when it takes less than a couple of months of income for consumers to be able to afford a computer, resulting in a rapid increase in PC penetration rates. And this happens across markets virtually everywhere in the world.

What's interesting (and exciting for Intel investors) is that several big markets like China, Latin America, and Eastern Europe are just hitting that eight-week point now. If they follow the historical patterns that we've seen in pretty much every other area of the world, we should start to see rapid increases in penetration rates across these markets. And, in fact, Intel is already seeing this occur.

We haven't seen a phenomenon like this since the '90s, where you have large swaths of the world's population that not only want a computer but can an actually afford one. That's why, looking forward over the next several years, Intel expects two-thirds of the growth in the PC market to come from emerging markets -- to the tune of a couple of billion new PC consumers.

When James Early and I recommended Intel to Income Investor members in April, strong emerging-markets demand was a major part of our investment thesis. The stock has risen about 18% since then, outperforming the S&P 500 by more than 20%. But in addition to Intel, other companies are poised to benefit from this megatrend. They include Microsoft (Nasdaq: MSFT  ) -- whose Windows OS still holds the dominant share of the operating-system market for PCs -- as well as PC manufacturers Dell (Nasdaq: DELL  ) and Hewlett-Packard (NYSE: HPQ  ) . Even Apple (Nasdaq: AAPL  ) , with its premium-priced computers, stands to benefit as income levels in emerging markets continue to rise.

The key message: The PC market is not dead. In fact, it appears to be poised for explosive growth in the emerging-markets segment.

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Joe Tenebruso manages a real-money Rising Star portfolio for The Motley Fool and is an analyst on The Motley Fool's Million Dollar Portfolio and Income Investor premium services. Joe is short put options on Apple. The Motley Fool owns shares of Microsoft, Apple, and Intel, and has call options on Intel. Motley Fool newsletter services have recommended buying shares of Microsoft, Intel, Apple, and Dell, as well as creating bull call spread positions in Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (6)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 30, 2011, at 3:32 PM, Starfirenv wrote:

    Sure it is. Wal-Mart too. Silicon Valley too. AND your gold is worthless. Dont you read TMF? Been dead for years- all of 'em.

  • Report this Comment On October 30, 2011, at 5:04 PM, SimchaStein wrote:

    True, PC not deal. Ditto newspapers. But Apple just returned 4X yr/yr growth in China. So yes, emerging markets will increase PC sales dramatically. But PCs will NOT be the default purchase in this decade as they were in the 90s.

    I'll predict: Tablets will outsell PCs in the markets listed in the article.

  • Report this Comment On October 30, 2011, at 5:43 PM, russfischer1013 wrote:

    First of all, Stacy might get a little pissed if you keep referring to him as a woman.

    Pads are going to need more run security, for example, so the CPU for tablets is likely to move quickly to Intel processors as the power level come down next year.

    Intel looks like the long term winner to me. ARMH is a good company with a very different business model, but a fair value on ARMH is about a third of where it is trading. While Intel is probably worth 2-3 times where it is trading. That should shake out over the next year or so.

  • Report this Comment On October 30, 2011, at 6:26 PM, Hydpdx wrote:

    As russfischer1013 pointed out, Stacy Smith is a he, not a she. Also, tablets will replace the nettop/netbook segment but it's seems less likely that they'll replace laptops since the usage models are quite different.

  • Report this Comment On October 30, 2011, at 11:35 PM, techy46 wrote:

    PC's not dead because Microsoft's Windows 7.5, for phones, and Windows 8 for all PCs including desktops, notebooks, phones and tablets makes all these devices either fixrd or mobile PCs. Make your choice but as far as Intel, Microsoft and Nokia are concerned, you're buying a PC. Next up, PCs using ARMH chips and Windows 8. PC's mobile not dead.

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