Desktops in decline in developed countries

Once at the epicentre of PC makers' profits, desktops are losing their lustre as companies are hit by thinner profit margins and more emphasis is placed on mobility, analysts say.

Users are increasingly adopting laptops as prices fall, and desktops are being bumped to a niche audience including task workers and gamers. The increased laptop adoption has dropped the average selling price of low-end desktops, which has led to low margins for vendors, especially in the US.

At the end of May, Dell reported that its desktop revenue fell 5% year-over-year despite a 9% increase in shipments in the first quarter of 2009.

"It's important to point out that our notebook growth rate was high and indicative of the trend toward mobility products over the desktop," says David Frink, a Dell spokesman.

Dell's business model was built around desktops in the client and corporate space until a few years ago, and its failure to quickly turn to laptops put its business in trouble, says Roger Kay, president of consulting firm Endpoint Technologies Associates. The shift to mobile products across the major product lines has put the company back on track, Kay says.

"The trend of switching over to notebooks will continue to rise. I don't think they're going to stop anytime soon," he says.

Dell's laptop shipments grew 43% during the quarter, with revenue growing 22% year-over-year to US$4.9 billion (NZ$6.2 billion).

Dell's drop in desktop revenue reflects a growing problem with the desktop market in general, says Charles King, president of research firm Pund-IT. "Desktops have traditionally been a market where profit margins are extremely thin to begin with," he says.

Notebook sales have overtaken desktop sales for most vendors, who are becoming wary about their desktop businesses because of competition and low margins, King says.

"It is a warning flag, not just for Dell. Almost all the PC vendors are going to see ... problems with their desktop sales over time," he says.

While demand for desktops in the US has slowed down, global demand has shown more life internationally. The world's top PC vendor, Hewlett-Packard, did not record year-over-year growth in desktop shipments in the US in the fourth quarter of 2007, shipping just 2.15 million units, according to analyst firm IDC. But HP shipped 6.86 million desktops worldwide, a 10.7% increase over last year's fourth quarter.

While desktop and laptop prices are close to par in the US, low-end desktops are more affordable than laptops in developing countries, which makes them appealing as a first machine for users, Kay says. The trend is changing, with laptops like the XO from One Laptop Per Child and Asus' Eee PC aimed at first-time users.

"When you look at how aggressive vendors have been in pricing those products — increasingly aggressive I think — and relying more and more on low-end sales as opposed to high-end gaming and business PCs ... a company can have actual increases in sales but declines in revenue," King says.

Desktops are highly configurable compared to laptops — which are highly integrated — so gaming-system builders and niche white-box vendors may flourish on building desktops, Kay says. Theoretically, everything else in desktops could go mobile.

"If the price is the same between notebook and desktops, [users] will go mobile," Kay says.