Can the PC Industry Resurrect itself?

IDC’s recent report stated that PC shipments declined 13.9% last quarter, the worst since IDC has been tracking PCs. It says a lot about the state of the PC industry.

The role PCs are playing in people’s lives is changing, and the growing demand for tablets and smartphones has taken its toll on the PC market. Last week my son Ben, in his column for TIME Tech entitled “The iPad-Sized Nail in the PC’s Coffin” laid much of the blame on the iPad for deflating PC sales. Ben also made the point that people are either keeping their current PCs longer or if they buy a new PC or laptop, they buy cheaper models because they are “good enough” to use for any computing needs that can’t accomplished on a tablet.

But is the PC really dead? And if not, how will PC vendors respond to this challenge from tablets and smartphones?

It turns out that people have found they can do as much as 80% on a tablet that they used to do on a PC. However, they have also found out that tablets by themselves cannot meet all of their digital computing needs, especially for handling things like media management, extensive photo editing, making complex home movies, doing their taxes and other similar tasks. This suggests that if they only need a PC 20% of the time, the need to buy an expensive PC does not make sense for most people.

For the past 10 years, a good part of PC sales were for laptops and PCs in the $799-$999 range — those which have higher-end processors, extended graphics capabilities and more on-board memory and hard drive space than laptops and PCs priced well below $699. We are hearing from consumers that if they only use a PC or laptop 20% of the time, the highest price they want to pay is $599, with most preferring price points of $399-$449. This is why Ultrabook sales have been very disappointing for the PC vendors who hoped that their touch-based Ultrabooks priced from $799-$1099 would be big sellers.

While PC vendors are quite cognizant of the shift in consumer buying trends for PCs, they are not about to give up without a fight. Almost all are trying to do tablets of their own and some, like Lenovo, are even doing smartphones and have actually done quite well in the Asian and Chinese smartphone markets. I think that reality has sunk in for the vendors, and they now understand that the market for laptops and PCs in the $699-$999 price point are being marginalized.

The good news is that there is still healthy demand for upscale laptops and PCs in the $1099-$1499 price range. But demand for these is mostly in the IT, business and SMB market, a much smaller market than the consumer sector. Even though volume in these is smaller than those that sell into the consumer market, the margins are good, so these vendors are happy with what they call the premium market for PCs. However, they are also shifting much of their efforts to creating low cost clamshell-based laptops and tablets with very aggressive pricing, and hope to use these to entice millions of PC users who have tablets but still need a PC for some tasks to upgrade their current PCs to more up-to-date touch-based models.

In fact, Intel CEO Paul Otellini gave us some indication of Intel and its PC partners’ strategy last week when he spoke on a conference call regarding Intel’s recent earnings announcement. He said, “If you look at touch-enabled non-core Intel-based notebooks that are ultrathin…those prices are going to be down to as low as $200,” hinting perhaps at more affordable laptops and Windows 8 tablets on the horizon. We are hearing that all of the PC vendors are working on what they call “ultramobiles,” which are very low cost touch-based clamshells and convertible tablets for this holiday season.

Key to understanding ultramobile designs is that while some will look like normal laptops or convertibles, to get this distinction, and to qualify for Microsoft‘s low cost license to use Windows Blue, they have to be systems that only use Intel’s Atom chip or a similar competitive one from AMD. Ultimately, the vendors believe these ultramobiles could help drive PC sales higher due to consumers’ demand to upgrade their laptops to touch-based systems. By the way, clamshell-based Chromebooks are in this ultramobile category too, even though they use Google’s Chrome web browser as the operating system.

(MORE: Windows Blue and the Rise of Ultramobiles)

Consumers have gotten very comfortable with touch interfaces on their smartphones and tablets and it is logical that they would want a similar interface on any new PC or laptop they upgrade to in the future. Indeed, this is what Intel, Microsoft and their PC partners are banking on. While they accept that users’ primary computing tasks are shifting to smartphones and tablets, they are convinced that even if they use a PC for 20% of their digital computing needs, the next one they buy will be touch-based. While Intel, Microsoft and the vendors would prefer selling people touchscreen ultrabooks at higher prices, they are now realizing that consumers want really low priced touch-based laptops that are good enough to handle anything they can’t get done on a tablet or smartphone. This is why ultramobile devices are being created. It does not mean that consumers will not have higher-end Intel touch-based Ultrabooks to choose from as well, but most of these will be at least $599 and higher.

So what does this mean for consumers this fall? Although consumers have been able to buy what we call value notebooks well under $599 for some time, most of these use older processors, non-touch screens, traditional hard drives and are bulky with poor battery life; their days are numbered. The industry will still offer some of these types of value notebooks for at least another year. But the push will be very strong from Intel, AMD and Microsoft to drive everyone to touch-based laptops in various price ranges, making it more likely that if a person needs to buy a new PC there will be a touch-based Windows 8 laptop they can afford. I suspect that within 12-18 months, non-touch-based laptops of any flavor will be hard to find.

What consumers can expect this fall are ultramobiles using either Intel’s Atom processor or the Temash version from AMD, with touchscreens, SSD drives, and thin and light designs. They will come in many flavors. Some will be traditional clamshells, sporting screens from 10.1 to 11.6 inches. Some will be what we call convertibles, which are clamshells that look like a traditional laptops but the screens pop off to become tablets. Some models will be like Lenovo’s Yoga, a laptop in which the screens folds back completely to make it a tablet, except the screen is not detachable. And some will be exactly like Microsoft’s current Surface Pro or Surface RT models. More importantly, they will all be priced under $599 with some coming in as low as $399-499 by the holidays.

Vendors will also offer Ultrabooks that use Intel’s dual-core processors, flash memory, touchscreens and also be thin and light but they will all be at least $599 and up.And of course if you really want a powerful PC or laptop, these will be available too, all in touch versions, starting and $999 and above. We also expect to see many new Windows Blue tablets in the 7″ to 9″ screen sizes in time for the holidays.

Although the PC market is changing, it is clear that for many people, a PC or laptop could still be important. The industry is ready to move these people to touch-based systems with the next generation of user interfaces, at all types of price ranges. PC makers will try and make themselves as relevant as possible to the business and consumer markets for as long as they can.

Bajarin is the president of Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to Big Picture, an opinion column that appears every Monday on TIME Tech.