The enterprise PC: Not quite dead yet

" The PC is dead." That's what some pundits have been saying as the market for tablets has been expanding dramatically. But Intel begs to differ. It just released an advisory increasing its expected quarterly and yearly revenues and gross margins, saying, "The change in outlook is driven mostly by strong demand for business PCs." So perhaps the PC market isn't quite dead yet, to quote Monty Python.

What's going on here?

The majority of enterprise users are not able to do everything on tablets. They still need to create complex documents, spreadsheets and presentations, and enter significant data into ERP, CRM and other enterprise systems. Some enterprise users have decided they can do all of this on their tablets, but most consider tablets to be inadequate for those tasks. For these users, tablets are supplemental devices, not PC replacements. In fact, very few business users that have acquired tablets have given up their PCs. And we're seeing a slowdown in the demand for tablets in business settings.

So how did the "PC is dead" talk arise? The market for PCs did decline, and that occurrence coincided with the rise of the tablet. But something else was going on, and when you factor that in, the PC-tablet relationship becomes less of a winner-takes-all situation.

Over the past few years, enterprises have been hesitant to upgrade their installed base. This has been due to various macroeconomic factors like lack of growth and limited hiring (or even a shrinking worker base). It's also been affected by the reluctance of enterprises to be early adopters of a new OS ( Windows 8). But many of these factors are now changing. The economic picture is improving, and many companies are now cautiously hiring again. And many enterprises that were hesitant to upgrade now have an aging, or in some cases obsolete (e.g., still running Windows XP) installed base of PCs that need to be upgraded. Meanwhile, recent improvements to Windows 8 by Microsoft have eased the reluctance to move to it (although it's fair to say that there is still a healthy market in new PCs running Windows 7).

There is another factor involved here, and that is the new form factors for mobile PCs that are approaching the size, weight and versatility of tablets. Two-in-one form factors and ultrabooks are now becoming both more affordable and sexy enough to get users interested. And while the best of breed of these machines are still on the pricey side ($800+), a definite disadvantage in the consumer market, enterprise users are more focused on quality and usefulness and are willing to spend a little more to get the extra utility. (Intel is seeing an uptick in chips it sells for these machines.)

So what can we expect? I foresee that the general uptick in mobile PCs geared toward enterprise users will continue for at least the next two to three quarters -- and likely beyond that. The uptick won't be as dramatic as we've seen in the past, but it will be steady and substantial. This will have major positive impact on Intel (and other chip suppliers, like AMD), and on OEMs focused on business users, like Dell, HP and Lenovo. I further expect 20% to 25% of business users to adopt the two-in-one devices over the next one to two years, in some cases replacing their existing tablets (which they will then likely hand down to their families). This will raise the average price per machine into the $700-to-$1,000 range for typical business users, giving all of the vendors a boost. And it will have a positive impact on Microsoft OS revenues and additional software upgrades.

It's pretty clear that the PC market in enterprises is not dead. The workplace is certainly becoming more mobile-oriented, and tablets (and smartphones) will continue to have a major impact on apps and user interactions. But for those enterprise workers looking for optimized platforms to do complex tasks, it's hard to beat the versatility and performance of a PC. And that's why the PC is going to see an upswing after its relative drought.

Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass.

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