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Windows XP death expected to resuscitate the PC industry

The Windows XP end of life could revive the breathless PC industry as enterprise IT shops buy new systems to upgrade to Windows 7 or Windows 8.

The Windows XP death looms large over enterprise IT shops that still use it, but the aging operating system's parting gift will be a stabilized PC market.

Recent Q4 2013 worldwide PC shipment results from research firms Gartner Inc. and IDC illustrate the continued PC market slump but also reveal another side: The PC industry is exhibiting some stability, thanks in part to Microsoft's end of support for Windows XP.

During the fourth quarter, worldwide PC shipments were 82.6 million, down nearly 7% from 88.7 million unit shipments a year ago, Gartner reported. IDC reported 82.2 million units, representing a year-over-year decline of 5.6% from 87 million.

Everyone wants to write off the hardware business as being dead and gone, but at the same time, these companies can evolve into ... hardware and software solutions [companies].

Bob O'Donnell,
founder and chief analyst, TECHnalysis Research LLC

While this data represents the bellwether for the worldwide PC industry, there are signs of growth in some regions.

"In the U.S. market, the contraction started several quarters back, and we are seeing signs of stabilization," said Rajani Singh, a PC analyst at IDC. The U.S., which makes up nearly 21% of the overall PC market, was only down 1.6% compared with the same quarter a year ago, and Singh expects this quarter for it to get closer to 0%.

The stabilization is partly because enterprises have purchased the necessary hardware to migrate to newer OS versions in response to the Windows XP end of life on April 8, 2014. In fact, enterprise migrations from Windows XP to Windows 7 will be a boon to the PC market past the first, second and third quarters of 2014, Singh said.

Indeed, Windows XP's death forced organizations like the Iowa City Community School District to start its migration project at the end of 2011.

The migration from Windows XP to Windows 7 is all but done, said Joe Primasing, senior systems administrator for the school district in Iowa City, which used the Dell KACE K1000 and K2000 migration appliances to help with the project. He is now exploring a migration to Windows 8 as well.

The district supports 6,000 PCs, but not all Windows XP machines have been migrated just yet. About 200 still exist, and they will be replaced or put on an exceptions list, Primasing said. Some applications are too costly to upgrade at this time, he said.

While that IT team is one of many to have already migrated to Windows 7, those who track Windows XP's presence show it is still alive and well. Windows XP garners about 29% of the Windows market share, compared with Windows 7 at 47.5% and Windows 8 and 8.1 at 10.5%. Windows Vista is at 3.6%, and all other operating systems provide a combined 9.4%, according to Net MarketShare's desktop operating system results for December 2013.

Evolve IP, a cloud services company based in Wayne, Pa., recently surveyed more than 1,070 North American IT respondents in midmarket companies about Windows XP. The survey found that 77% of the respondents said they still ran Windows XP in some way.

"I didn't expect that number to be quite so high," said Scott Kinka, Evolve IP's chief technology officer. His concern was the high number of respondents who said they would "roll" with whatever issues they need to handle after the Windows XP support deadline passes.

Sixty percent of respondents said they will continue to have Windows XP in their organization, and some said they plan to support Windows XP internally, he added.

PCs makers move away from hardware

Other devices could also affect the PC market, albeit in a less significant way. The industry is seeing better-than-expected success of Chromebooks in the education sector, as well some business from the lowered total cost of ownership and strong IT support for the Google Apps console, Singh said.

However, the PC industry still ships more than 300 million units worldwide annually, making it difficult to declare its demise, especially in businesses.

The PC market is skewed toward commercial shipments, and PC makers are in competition to get more of the consumer segment. Hewlett-Packard is giving consumers a $150 off of some PCs online and promoting a return to Windows 7 instead of Windows 8.

Windows 8 is heavily focused on touch, and it is not as comfortable a platform for content creation as Windows 7, Singh said.

HP also recently unveiled an all-in-one PC that runs the Android operating system. While HP is one of Microsoft's key partners, its step back from Windows 8 in recent weeks seems to be a clear sign that vendors need to do what it takes to ensure their own profitability in a competitive PC world.

Even component suppliers such as Intel now support dual-OS systems.

HP and Dell have had to broaden their offerings with software, cloud and other services.

"Everyone wants to write off the hardware business as being dead and gone, but at the same time, these companies can evolve into a hardware and software solutions company," said Bob O'Donnell, founder and chief analyst at TECHnalysis Research LLC in Foster City, Calif.

Dell, which is now private, has made numerous acquisitions over the years and is emphasizing its software division as a key group to drive growth in the lucrative midmarket segment. In addition, Dell has emphasized its flagship hardware group and other cloud and services organizations.

HP has done the same. In a recent webinar led by CEO Meg Whitman and her top lieutenants, the company promoted its IT data analytics products for IT administrators.

"HP is taking a more measured view and exploring [its] options," said Rob Helm, vice president of Directions on Microsoft, a Kirkland, Wash.-based IT consultancy. However, noting the company's overall changes in executive management for the past few years, Helm said he believes HP needs to focus on execution.

Analysts said it was smart for HP to continuing playing up its hardware, especially with printers. Indeed, HP's printer business continues to be one of its more profitable pieces of the company, with $6 billion in revenue and an operating profit of nearly $1.1 billion in Q4 2013.

In contrast, HP's Personal Systems Group, which houses its notebooks, desktops and workstations, posted $8 billion in revenue and an operating profit of $259 million. Commercial revenue was up 4% during the quarter but down 10% among consumers.

HP is leading conversations about services and solutions around the printer business, said Chris Silva, research director at Gartner. It is less about the hardware and more about a services focus that caters to mobility, he said.

The last holdout

Lenovo is one of the holdouts focused on hardware, purchasing not only IBM's ThinkPad product line 10 years ago, but also last week acquiring IBM's PC server business in a $2.5 billion deal. This week Lenovo bought Google's Motorola Mobility business for $2.9 billion. Whether Lenovo can continue to rely on hardware sales remains to be seen.

Lenovo has observed a slowdown in the industry partly because of market confusion over new and emerging form factors, said Chris Frey, vice president of the North American channel and SMB at Lenovo. End users grapple with having full desktop PCs at work and then can have a different experience after hours, depending upon their device.

"Consumers at home or work are scratching their heads [over] which device to use," Frey noted.

The confusion is only exacerbated by worker use of smartphones and tablets, which are more than just content-consumption devices.

"Tablets and phones have not cannibalized the PC, but they have been a companion device," Frey said. Lenovo will deliver different usage models to meet the needs of its end users.

"As I look at the PC and mobile tablet and the commercial side, almost a year ago, no one was thinking about the tablet as a viable solution," said Neil Hand, vice president of tablets and Dell's performance PC group. Today, tablets are more in the minds of his commercial customers as new designs, mobility and consumerization come into play, he noted.

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I can tell you this, the vast majority of enterprises won't be upgrading to Windows 8. It will be Windows 7 now, and a wait and see approach for whatever Windows 9 brings. If MS think this will kick-start Windows 8 sales, they're mistaken.