Apple IPad’s ‘Buzz Saw’ Success Cuts PC Sales at HP, Dell

Apple IPad’s ‘Buzz Saw’ Success Cuts Into PC Sales
More than 70 million tablets like the Apple Inc. iPad will be sold in 2011, a total that will balloon to 246 million in three years, Jefferies & Co. said yesterday. Photographer: George Frey/Bloomberg

The iPad is wreaking havoc on the personal-computer market.

Hewlett-Packard Co.’s consumer PC sales plunged 23 percent last quarter, and the company lopped $1 billion off its annual sales forecast. And while rival Dell Inc. beat analysts’ estimates because of corporate demand, its sales to consumers slumped 7.5 percent. More than 70 million tablets like the Apple Inc. iPad will be sold in 2011, a total that will balloon to 246 million in three years, Jefferies & Co. said yesterday.

“You’re walking into a buzz saw,” Jane Snorek, a senior research analyst at Nuveen Asset Management in Milwaukee, said of the iPad. Her firm manages more than $200 billion in assets. “The tablet is going to replace at least the home computer.”

At 7.3-inches across with a color screen and an array of popular downloadable games like “Angry Birds,” applications for watching movies and reading magazines, and software for word processing and spreadsheets, the iPad has siphoned off more PC sales than analysts and executives predicted.

Apple, based in Cupertino, California, and run by Steve Jobs, sold 4.69 million iPads last quarter, for a total of about 20 million since the April 2010 debut. Apple shares increased $3.73, or 1.1 percent, to $339.87 at 4 p.m. New York time in Nasdaq Stock Market composite trading, for the biggest gain in almost four weeks.

The PC market, by contrast, declined last quarter. Global shipments fell 3.2 percent, hurt in part because some consumers bought tablets instead, research firm IDC reported last month.

While rivals including Research In Motion Ltd., Motorola Mobility Holdings Inc. and Samsung Electronics Co. have begun selling tablets, the devices have yet to gain wide traction.

Microsoft, Intel Impact

The lack of viable competitors was felt across the PC industry in the first quarter. Microsoft Windows sales fell 4.4 percent to $4.45 billion. Its net income of $5.23 billion was eclipsed by the $5.99 billion reported by Apple, which topped its rival in that measure for the first time in 20 years.

At Intel, whose processors run more than 80 percent of the world’s personal computers, growth in the PC-chip division came mainly from emerging markets and corporate sales.

Hewlett-Packard, the top PC maker, yesterday cleaved 20 cents a share from its annual earnings forecast, to $5, excluding items. The revised outlook sent the shares tumbling 7.3 percent on the New York Stock Exchange yesterday and left the stock down 12 percent since the last business day before Nov. 1, when Leo Apotheker took over as chief executive officer.

“Leo comes in just as the tablet is taking off, and the consumer PC market is waning,” Snorek said.

‘Bifurcated Market’

In a conference call yesterday, Apotheker bemoaned a “bifurcated” PC market, where companies are spending and consumers aren’t. Sales in the company’s personal systems group fell 5.4 percent to $9.42 billion last quarter.

At Hewlett-Packard, full-year sales will be $129 billion to $130 billion. In February, HP had predicted full-year sales of $130 billion to $131.5 billion and earnings of at least $5.20 a share. Third-quarter forecasts from HP also missed analysts’ estimates.

Dell was able to top analysts’ estimates with its quarterly results yesterday because of demand from businesses. Its sales to consumers fell partly due to competition with the iPad and other tablets, said Brian Gladden, chief financial officer of the Round Rock, Texas-based company.

“It’s clearly a topic of discussion and it’s a factor that’s impacting the weak consumer demand,” he said in an interview.

The success of the iPad, along with the iPhone and new versions of the Mac, helped Apple supplant Microsoft as the world’s most valuable technology company last year.

Apple’s Gains

“In terms of the rise of tablets and Apple doing extremely well, that clearly impacts all the stakeholders in the space,” said Abhey Lamba, an analyst at International Strategy & Investment Group in New York.

Hewlett-Packard plans to deliver a tablet called the TouchPad this summer. The device will run the WebOS operating system, which the company acquired when it bought Palm Inc. last year. WebOS also runs on smartphones and will appear on Hewlett-Packard PCs next year.

Intel is redesigning its chips to use less power and work better with tablets, the company told analysts yesterday.

CEO Paul Otellini said the company will design future products to make its chips more appealing for use in smartphones and tablets. He’s trying to lessen his company’s dependence on the PC market and have it profit more directly from demand for tablets and phones, a market where Intel’s chips have lost out to rival designs.

Microsoft plans to release version of Windows optimized for touch-screen tablets next year.

Companies that aren’t selling tablets risk getting left behind, said Tony Ursillo, an analyst at Loomis Sayles & Co.

“Most of the growth is going to come on the tablet side,” he said.

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