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With PC Market Growth in Peril, Can Ultrabooks Save the Day?

How quickly the tools of tomorrow become the awkward dust collectors sitting on the shelves of your local Salvation Army. Ten years ago, the luxury of affordable, durable laptop PCs seemed like an impossible dream, but desktop PCs gave way and laptops took over. Then it was notebooks. Then it was netbooks. Now, as far as average consumers are concerned, even the slimmest laptop in the world and the most powerful desktop may as well be a fluttering old Rolodex and tape-recorder answering machines.

Fine, it’s not that bad. Consumers haven’t totally turned their backs on the PC market in favor of high-powered, equally affordable smartphones and tablets. For the leading PC makers of the world, though, the lack of growth in the market feels pretty dire. Research firms Gartner and International Data Corp. reported results for the PC industry’s fourth quarter in 2011 on Thursday, and while the sky didn’t fall, it looked pretty overcast. According to IDC, PC shipments declined year-on-year 0.2%, to 92.7 million devices, during the fourth quarter, better than the 0.6% drop it had projected earlier in the year. Gartner had worse news, though: That company’s research found that shipments declined 1.4%, to 92.2 million devices, over the quarter.

The downside of optimism

Despite rumblings from Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) that the fourth quarter would see decreased PC demand, there was reason to be hopeful about the holiday season. PC shipments actually grew 3.2% year-on-year during the third quarter of 2011, according to Gartner, with shipments of 91.8 million PCs driven by student demand. Even then, however, PC vendors like Hewlett-Packard (NYSE:HPQ) were projecting a 5.1% uptick in the market during the third quarter.

So the PC market isn’t dying, but it’s certainly wounded. For some companies, this has been seen as an opportunity. Lenovo (PINK:LNVGY), for example, has watched its share of the global PC market rise even as the overall market contracts, surpassing Dell (NASDAQ:DELL) to become the world’s second leading PC vendor. Lenovo’s share of the market has steadily risen over the past year, up to 14%, just behind market leader HP, with 16%. Lenovo’s success comes in part due to its lower-cost machines, even though cheap doesn’t seem to be a guaranteed winning strategy. The Hong Kong-based company’s primary competitor in the budget PC market, Acer, has watched its share of the market crumble from 14% to 10% in the span of a year.

While Apple swims upstream …

There seems to be no ready solution to market’s growth problems. Apple (NASDAQ:AAPL), whose iPhone and iPad portable devices are in part responsible for consumers spending less on traditional computing tools, has seen its own PC business grow 20% in the past year, according to Gartner. This is thanks to the company’s ultra-thin MacBook Air laptops, a model whose success Acer, Lenovo, HP, and Dell are all trying desperately to replicate.

At the International Consumer Electronics Show this week, all four market leaders are showing off thin, light, high-end Ultrabook laptop PCs. Lenovo has its IdeaPad, whose price undercuts Apple’s MacBook Air by $300. HP has the Envy 14 Spectre, a $1,400 behemoth meant to be a premier luxury device. Acer has its Aspire S5 and Dell is hocking its very first Ultrabook, the XPS 13. The Ultrabook push may not help these PC makers in the way that they need, though. Early Ultrabooks from Acer and Asus disappointed in 2011, with each manufacturer shipping around 100,000 apiece amid projections they’d ship between 200,000 and 300,000. It’s possible that with Microsoft’s Windows 8 and a better mix of high-end and affordable machines, the Ultrabook initiative will take off, but the odds it’ll actually happen aren’t clear.

Will the PC market thrive again? Maybe not. With consumers’ Web needs met by connected portables, an all-purpose PC just might not be as necessary a tool any longer. And with Apple dominating the tablet market, it’s proving difficult for PC makers to broaden their reach. 2012 will be a telling year for a market that used to look like the future.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

Article printed from InvestorPlace Media,

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