The Netbook is dead! Long live media tablets!

Toshiba netbook

Let me offer apologies for being asleep at the wheel. Somehow I missed the road sign -- or perhaps ran it down -- for Gartner's updated PC shipment forecast, released last week. The analyst firm reduced 2011 PC shipments -- again. Massive slowdown in netbook sales and increased media tablet adoption are major reasons.

For years, the PC market benefitted from strong laptop sales that offset declines on the desktop. But the times they are a-changin.

"Consumer mobile PCs are no longer driving growth, because of sharply declining consumer interest in mini-notebooks," Ranjit Atwal, Gartner research director, says in a statement. "Mini-notebook shipments have noticeably contracted over the last several quarters, and this has substantially reduced overall mobile PC unit growth."

While bad for PC OEMs, the situation is potentially good for Microsoft. Mini-notebooks -- Gartner's name for netbooks -- typically ship with Windows 7 Starter Edition, for which Microsoft makes less revenue per license. The company earns more from any of the Pro versions. Lower volume isn't a bad thing if the Pro mix is higher. There Gartner has additional good news for Microsoft.

"Businesses sharply reduced replacements and extended PC lifetimes in response to the recession," Raphael Vasquez, Gartner research analyst, says in a statement. "Businesses have begun replacing aging PCs more vigorously. We expect the growing urgency for businesses to migrate away from Windows XP will drive significant professional replacements."

Hey, that is good news for Microsoft. But -- wait for it -- the story is more complex. Consumers are delaying PC purchases. "Media tablets, such as the iPad, have also impacted mobile growth, but more because they have caused consumers to delay new mobile PC purchases rather than directly replacing aging mobile PCs with media tablets," Atwal adds. "We believe direct substitution of media tablets for mobile PCs will be minimal."

No "direct substitution" is a polite way of saying consumer PC sales are still fraked by media tablets. Purchase delay is the problem, as consumers use tablets alongside aging PCs -- replacing some functions instead of getting them from a new computer. Recent AdMob and Nielsen tablet owner surveys reveal startling trends, some that contradict Gartner's assessment. AdMob found that 28 percent of tablet owners use the device as their primary PC. One third of tablet owners use their PCs less, says Nielsen.

Gartner sees a fundamental change coming to the PC market and the the character of the device. The PC is one of the few truly successful multi-functional devices. No longer.

"The PC market is experiencing dramatic structural changes," Atwal says. "Moving forward, PCs will no longer be a market by themselves, but part of a larger device market that ranges from smart televisions to the most-basic-feature phones. Within this market, consumers and professionals will increasingly use the combination of devices that best suits their particular needs."

Hence, a major reason why the smartphone and tablet markets are increasingly important, and why Microsoft must catch up quickly in both quarters -- where once it was a leader, or the leader. IDC predicts 1 billion smartphones shipped by 2015, which is larger than the entire PC install base -- and that is growing by trickles.

Gartner predicts just 385 million PC shipments for 2011, reducing growth rate estimates to 9.3 percent from 10.5 percent.

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