Whatever Happened to Expensive PCs?

Gone are the days where contemplating the purchase of $2,500 PC was a common occurrence. You'd have to go back to 1995 when the PC had zero competition from mobile computing and the idea of the "home computer" was a fairly new concept. Over the subsequent 18 years, Moore's Law has been hard at work bringing down the cost of computing, boosting performance, and helping drive worldwide adoption rates. Nowadays, an excellent laptop for the everyday user can be had for less than $500 and a solid tablet or smartphone can be bought for around $200. As a result, a combined 1.5 billion computing devices -- PCs, tablet, and smartphones -- are expected to ship this year. This is where it gets interesting: Of the 1.5 billion devices, only about 21% are expected to be of the PC variety. The world of computing has certainly changed.

Source: NPD.

The key takeaway here is that lower-end PCs are becoming more capable with each passing year, meaning the everyday user no longer needs a high-end PC to suit their needs. Additionally, the explosive rise of mobile computing has likely put added pressure on PC prices in 2012. Before the rise of mobile computing, PC makers and Intel (NASDAQ: INTC  ) would benefit from lower average selling prices because it translated to increases in unit volumes. Unfortunately, this hasn't been the case since 2011.

Sources: IDC and Gartner.

Playing catch-up
With worldwide tablet shipments expected to surpass portable PC shipments this year, and all PC shipments by 2015, PC makers have become pressed to deliver compelling computing solutions in the age of mobile computing. Naturally, Intel's path to salvation is squarely grounded in mobile computing. Between Haswell, Bay Trail, and Merrifield, Intel has covered its computing bases from the high-end Ultrabook down to the smartphone. With this technologically advanced lineup, it's hard to argue that Intel won't have a compelling suite of next-generation mobile computing processors to compete against the ARM-based competition in the next year. However, investors should be reminded that technology alone doesn't make an investment a guaranteed winner.

You see, the mobile computing industry has become even more commoditized than the PC industry. As a result, the average Qualcomm processor sells for around $22 -- far below the average selling price estimated for Intel, around $107. Realistically, if Intel is serious about growing its smartphone and tablet market share, it's going to have to match the competition on price.

That said, it's going to take almost five mobile computing processors to compensate for the revenue of one PC processor, and there's no guarantee current profitability can be sustained. Although ex-CEO Paul Otellini has told investors that its leading-edge capacity offers the lowest cost, highest performance, and lowest power on a per unit basis, he makes zero mention of gross profitability and the likelihood that average selling prices will decline. Ultimately, if you think Intel will automatically maintain its historically rich gross profit margins as it faces likely revenue pressure from the transition to mobile, you're making an assumption.

Mr. Softy could use a lift
In many ways, Microsoft (NASDAQ: MSFT  ) rests its PC laurels on the fate of Intel's success in mobile computing. So long as Intel can make inroads into the mobile computing world, Microsoft has a decent shot at making Windows 8's backwards-compatibility a key selling point to potential users. With the prospect of $200 Intel-powered Windows 8 tablets on the horizon, backwards-compatibility for a great price could potentially drive new revenue growth to Microsoft's Windows division and help tip the scale back in favor of the PC. Consequently, a $200 Windows 8 tablet doesn't address the issue of falling PC prices and may actually cannibalize PC sales.

The way forward
Is it safe to say that PC average selling prices will continue to decline? Unless the sea of $699+ Haswell-powered convertibles coming this holiday season captivates users, I think it's pretty likely that the PC will face continued pricing pressure in the future. Lower-end computing devices continue to get better in terms of performance for the price, and everyday users may not see the value of paying up for higher-end devices.

In the end, I think it's become clear that PC will continue its progression to become more tablet-like and it's still a bit of a wild card how this will all play out for investors.

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Read/Post Comments (8) | Recommend This Article (3)

Comments from our Foolish Readers

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 July 08, 2013, at 9:51 PM, herky46q wrote:

    So glad the days of the expensive computers are over!

  • Report this Comment On July 08, 2013, at 9:57 PM, stevenatorr wrote:

    im 38 and i didn't buy my 1st PC till 2009 i think. didn't have any interest in them and still don't. i just get bored to fast lookin at a screen for to long. about all i do is check email and read a few articles and shop on EBAY.

  • Report this Comment On July 08, 2013, at 11:13 PM, grahamsway wrote:

    Excellent article.

    I'm a bit of a luddite as I don't have a smartphone or tablet. But I bought a new PC recently called an all-in-one.

    Somehow they put all the innards that used to be housed in a big box into the thin monitor. So basically its a heavy tablet on a stand with a keyboard.

    Now if they could package this with a cheap mobile tablet connected by Wi-Fi for use as a stand alone tablet or terminal for the PC. And at a price around $650 for the pair (the PC cost around $450) I think that would be a winner for the PC folk and their supply chain. Especially INTC who could get a different level chip in each.

    Maybe if Mr. Dell wasn't so busy trying to buy his company on the cheap, he'd have an offering like this already.

  • Report this Comment On July 08, 2013, at 11:13 PM, snowcage wrote:

    The have been replaced by $2500 tvs

  • Report this Comment On July 09, 2013, at 7:51 AM, DonkeyJunk wrote:

    Something not taken into consideration here is replacement rate. How often are smartphones or tablets replaced versus computers? Tech in mobile devices is advancing rapidly enough to warrant replacement every two years versus 5 for desk/laptop machines. And when you're selling 4 times as many (and growing) mobile devices as machines, I don't think revenue is going to be an issue.

  • Report this Comment On July 09, 2013, at 8:12 AM, jamyang wrote:

    tablets will never replace the PC or laptop/ultrabook for those tens of thousands of users who need to do word processing. The so-called keyboard add-ons for tablets are a joke. These are different markets and the PC / laptop will go on for a long time. Don't sell your Intel stock yet.

  • Report this Comment On July 09, 2013, at 9:46 PM, jvgfool wrote:

    I understand this article, but I love my PC desktop. I go to my corner of the house/world and enjoy may ass kicking desktop with fast processing, mucho memory, and high res graphics. It's my space that I share with Einstein, my computer. Einstein, can you say hello to everyone. HELLO.

  • Report this Comment On September 02, 2014, at 6:24 PM, chuckpederson wrote:

    Can you comment on the recent increase in laptop and traditional computer sales? Is this purely due to business customers who need a replacement for the no-longer-supported Windows XP machines but are too unsure of mobile technologies to commit? What role does the uncertainty of Windows 8 (as untested in a corporate environment) play -- are corporations jumping at traditional hardware now so they can still get Windows 7 (which they may perceive to be less risky than Win8)? I would like to see this article updated for 2014.

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