The main engine of the technology world is misfiring.
PCs are no longer the cutting-edge product they were and desktop computing may not represent the future of the industry. Yet with sales of some 300m units a year, PCs still account for many of the jobs in the tech world, from motherboard designers in Taiwan to software developers in Seattle.
That made Intel’s profit warning this week a bombshell for a large part of the tech industry. The company, which makes most of the microprocessors for PCs, said its sales probably plummeted by 20 per cent in the final three months of last year, signalling the most brutal downturn since the tech bust at the start of the decade, when the market was far smaller than it is now.
To some extent, the dire headlines from the PC world this week have been a reflection of shifting fortunes that were already underway, but which have been intensified by the economic downturn.
Dell, which said it would cut 1,900 jobs in Ireland as it closes a plant there to consolidate manufacturing in Poland, has been losing ground to new market-leader Hewlett-Packard.
Lenovo, which said it would axe 2,500 jobs, or 11 per cent of its workforce, has been overtaken by Acer and fallen to number four in the rankings of world PC makers.
Yet while falling competitiveness has intensified the pain at certain companies, there is no denying the broader slump.
Even the tech world’s most profitable company is looking at ways to cut costs in the face of the downturn. Steve Ballmer, chief executive of Microsoft, dismissed recent speculation that Microsoft is about to make big job cuts as “irresponsibly wild”, but added that the company was looking to scale back some of its investments in the short term.
In this dire market, it is no wonder that the technology industry has turned its attention with renewed interest to the next big trends in personal computing: smartphones and “netbooks”, or small, low-cost laptops that emerged as a new hot category last year.
Both should sell relatively well during the coming hard economic times, partly because they represent new and more portable forms of computing that have opened up new markets, and partly because of their low prices - netbooks because they lack the resources of more powerful machines, smartphones because they are subsidized by mobile phone companies that expect to turn a profit from monthly charges.
Even as overall mobile handset sales tumble, most tech companies are expecting smartphone sales to rise this year, as a range of new touch-screen devices follow in the tracks of Apple’s ground-breaking iPhone.
“People are still buying smartphones, that trend seems to keep going on,” said Paul Jacobs, chief executive officer of Qualcomm, in an interview at the annual Consumer Electronics Show.
“Smartphones are an exploding piece of the overall phone market and that’s going to continue,” added Mr Ballmer.
The category accounted for 10-12 per cent of the 1.2bn or so phones sold last year, but will rise to 60 per cent of the global market by 2015, predicted Tim Bajarin, president of Creative Strategies, a tech consulting firm.
Sales of netbooks, meanwhile, will jump by 90 per cent this year, according to the Consumer Electronics Association.
These new personal computing markets, though in their early stages, have already brought some new companies to the fore in the tech world – companies like Asustek, the Taiwanese company that has been a pioneer in netbooks, and Research in Motion, maker of the BlackBerry.
Now, though, the traditional heavyweights of the computing world have their sights squarely set on these rare pockets of growth. Smartphones have rapidly become a crowded market, while most of the players in the PC ecosystem are rapidly adapting their products, from components to software, to suit the needs of netbooks.
The result, for tech companies, is likely to be a period of fierce competition – and for consumers, more innovation and lower prices.
