The rise of mobile computing has taken a toll on the demand for traditional PCs, and weighed on the stock of firms that depend on PC sales. Yet, the PC isn't dead, at least not yet -- there were more than 300 million sold last year.
Hewlett-Packard will soon create a pure play PC OEM
Hewlett-Packard is the second-largest PC manufacturer in the world, and its PCs generate a significant amount of its revenue (about 30% last quarter) and earnings (about 10%). But Hewlett-Packard also has many other businesses, including enterprise software and consulting.
Fortunately for PC-minded investors, Hewlett-Packard plans to split. Later this year, Hewlett-Packard will separate itself into two companies, one of which will be the largest PC firm traded on a major U.S. exchange. HP will include the company's PC division; HP Enterprise will focus on software and services. HP will also notably include the company's large printer division, but its success appears inextricably linked to the traditional PC. Investors can buy into Hewlett-Packard now, knowing that they'll receive shares of both in the split, or wait for it to occur before taking a position.
The Windows business is changing
Microsoft is in the midst of a transformation. Windows remains important to the software giant, but Microsoft's future appears tied more to cloud services like Azure and Office 365, ones capable of running across a wide variety of different platforms and devices. Nevertheless, Microsoft remains perhaps the single most important player in the PC market. Despite the rising popularity of Apple's Macs, Windows still powers about nine in every ten PCs sold worldwide.
In July, Microsoft will launch Windows 10, the next incarnation of its long-running PC operating system. Windows 10 includes a number of key features that make the PC platform more intriguing, including better support for different form factors and more tight integration with Microsoft's online services.
Microsoft is also increasingly a PC OEM in its own right. It doesn't come close to Hewlett-Packard, but sales of its Surface tablets have been rising in recent quarters. Surface-related revenue jumped 44% on an annual basis last quarter.
Microsoft is still the single company best able to dictate the flow of the PC market, and the one that could benefit from it the most. If Windows 10 reignites interest in the PC, Microsoft's business could surge.
Intel remains dependent on the traditional PC
Microsoft's longtime ally, Intel, could also benefit from a resurgent PC market. Intel has tried to diversify, including the recent agreement to purchase PLD-maker Altera, but its business is still linked to the demand for traditional PCs. About 60% of Intel's revenue comes from its processors used in traditional desktop and laptop computers.
Intel's newly created Client Computing Group includes both the sales of its processors used in traditional PCs and those used in mobile devices. However, Intel has generated minuscule mobile revenue in recent quarters -- it was only $1 million in the third quarter of 2014 -- suggesting that almost all of the $7.4 billion its Client Computing Group generated last quarter was from its PC processors.
That was down 8% from the same quarter last year. Intel's management cited a 16% decline in desktop PC sales to explain the drop.
If Intel's data center, Internet-of-Things, and soon PLD businesses grow, the relative importance of its PC processor business may decline in the years to come. But for now, Intel is still very much tied to the industry, and the relative success of the PC.