Surprise, surprise!
Gartner's latest forecast points to continued pain for the PC industry. Including "ultramobiles," which the firm defines as Google (GOOG +1.75%) Chromebooks, PC Ultrabooks, or hybrid convertible devices running Microsoft (MSFT 0.13%) Windows 8, worldwide "PC" shipments are expected to decline by 7.3% in 2013, but should post a 1% gain in 2014. To achieve growth in 2014, ultramobile shipments are expected to grow by 96.2% and traditional desk-based and notebooks PCs should decline by another 5.2%. In other words, the appetite for highly portable PCs is expected to be robust, but will come at the expense of more "clunky" PC designs.
Once also taking into account for smartphones and tablets, the entire computing device outlook looks promising. Combined, worldwide computing device shipments are expected to grow by 5.9% this year and by another 6.7% by the end of 2014 as the world continues to embrace the mobile computing revolution.
Mr. Softy blues
Perhaps the most surprising development out of this forecast is how Apple (AAPL +0.56%) and Microsoft are expected to be neck and neck in terms of device shipments by the end of 2014. At that time, it's expected that Apple will have shipped a combined 354.9 million iOS and Mac devices and Microsoft will account for 378.1 million devices that run Windows. The storyline is all too familiar: Microsoft continues to lose its computing dominance to players that have more effectively addressed the worldwide shift to mobile computing.
Units matter
As exciting as it is for Apple to have the opportunity to surpass archenemy Microsoft, it's a small victory in the grand scheme of things. Let's not forget we live in a world where over 2 billion computing devices ship on a worldwide basis each year. Guess which company is claiming the biggest stake? Google.
Gartner expects Google Android will ship on over 866 million devices this year and well over a billion devices by the end of 2014. Naysayers will immediately dismiss Google Android since Apple "controls the majority of smartphone profits." If you fall into this camp, please be reminded that Android expands the usage of Google's lucrative search business. Last October, Google CEO Larry Page announced that mobile has become an $8 billion a year business, which represented an increase of 220% from the previous year. Considering the continued growth of Android devices since October, it's all but certain mobile is worth even more to Google. Additionally, Google makes money regardless of ecosystem or form factor, provided users continue utilizing Google Search.
The bigger picture
With over 2 billion computing devices being shipped throughout the world each year, it's become clear that computing devices have become commoditized. As a result, investors have grown unwilling to pay a premium for companies that primarily sell computing devices. It might explain, in part, why Apple trades with a single-digit P/E ratio. For sentiments to change, Apple will have to regain the faith of investors by showing them that its brand and devices aren't just a commodity.
And then there's Google, which is a more of a "pick and axe" investment that benefits from the mobile computing revolution regardless of which device or ecosystem strikes it rich. Consequently, investors are comfortable with Google trading at 41% premium to the S&P 500.
Based on price alone, I think Mr. Market has already crowned Google king.
