What's behind the slump in PC sales? Can the industry turn around?

PCs are for work, tablets are for fun.

That is all the economic analysis you need to understand why PC sales in the fourth quarter of 2012 have been lackluster.

No one climbed on Santa's lap and asked for a new laptop. They wanted a Kindle or an iPad, or maybe even a cheap Android tablet, all of which cost less than a PC and are easier to wrap.

The latest data point for PC sales comes from Fujitsu, a third-tier PC maker, whose president told reporters in Tokyo that the company will miss its target for annual PC sales. Bloomberg BusinessWeek reported the remarks and prominently blamed "slow demand" for Windows 8.

Initial appetite for the software, introduced in October, is “weak,” Fujitsu President Masami Yamamoto, 58, told reporters in Tokyo yesterday. Slumping demand in Europe amid the sovereign-debt crisis will also erode sales, he said. PC deliveries for the year ending March 31 may be more than 6 million units, compared with an October estimate of 7 million, he said.

Reuters, which covered the same story, wrote a very different opener:

Dec 27 (Reuters) - Fujitsu Ltd is likely to miss its personal computer sales target this year due to sluggish demand in crisis-hit Europe as well as a backlash against Japanese products over regional tensions with China.

Fujitsu president Masami Yamamoto told reporters the firm, which makes micro chips, smartphones and computers, was likely to miss its target to sell 7 million PCs this fiscal year to March, predicting sales of between 6 and 7 million.

Fujitsu isn't a very good proxy for the PC market as a whole. Its PC manufacturing business has been in decline for years, and its emphasis on European markets has been particularly unfortunate as that region has struggled economically to deal with economic collapse in Greece, Spain, Italy, and a general slowdown elsewhere.

Meanwhile, two of the top three PC makers appear to be holding their own. In its most recent results, Lenovo bucked overall market trends and reported an increase in sales: "During the company’s fiscal second quarter ending on Sept. 30, Lenovo reported that its PC shipments grew year-over year by 10.3 percent."

And then there's Dell, which appears to have stabilized its PC business by focusing more on small business and less on fickle consumers. Interestingly, the same Bloomberg story that focused on Fujitsu buried these comments from CEO Michael Dell near the end of the story:

Dell Inc., the world’s third-largest PC maker, said Dec. 12 it’s seeing strong demand for computers and tablets running Windows 8. Interest in the operating system is “quite high,” Dell Chief Executive Officer Michael Dell said at a conference in Austin, Texas.

(The third member of the top three, HP, is a basket case, with major problems in its business, a revolving door in the CEO suite, and a schizophrenic approach to the PC market. No wonder its PC sales are down 16% year over year.)

PC makers who were hoping a for a pop in sales with the launch of Windows 8 were disappointed. Emmanuel Fromont, president of the Americas division of Acer, told The New York Times, “There was not a huge spark in the market” and said his company's Windows 8 PCs were off to "a slow start, there’s no question.”

The latest web usage statistics from Net Market Share bear out that conclusion. Usage of Windows 8 has increased steadily since its launch, relative to other versions, but there hasn't been a spike. Here are the latest numbers, collected this morning and current through December 30, 2012:

That's a steady gain for Windows 8 every week since its launch, with a bigger bump in the week beginning December 23, which included Christmas Day. (For a discussion of last month's numbers, see "How are Windows 8 sales? Still too early to tell.")

The reality is that anyone expecting a new Windows version to deliver a big bump in PC sales is living in the past. PCs aren't sexy consumer goods, and they're too expensive to be high-volume gifts. Although the conventional wisdom is that PC makers have to deliver their goods in time for "the crucial holiday buying season," the reality is that PC buying happens all year long. In a tough economy (especially so in Europe) businesses and consumers are buying PCs when they have to, and making existing PCs last longer.

So a PC that might previously have been replaced after three or four years is being pressed to last an extra year or even two. If the average lifespan of a PC goes from four to five years, that's the equivalent of a 20 percent annual drop in sales, which is unwelcome news to PC makers who were hoping, unrealistically, for a magical increase in demand in a weak global economy.

The most likely economic scenario? The PC industry will grind out sales over the next year at a slower clip than the previous year, led by businesses rather than by consumer demand. If sales are down 20 percent (probably a worst-case scenario) that's still more than 200 million new Windows PCs that will be on the market a year from now, with most of them running Windows 8. At some point, that plodding growth will result in an installed base that's too big for developers to ignore.

The real question is whether Microsoft and its OEM partners can expand beyond their traditional market by delivering Windows 8-powered gadgets that don't look like PCs or have PC-like price tags. The Surface, Microsoft's first attempt to crack that market, hasn't been a box office success, but it did succeed in proving that a device running Windows doesn't have to look like a gray clamshell or a black tower.

Microsoft's Surface Pro is due in January, and there's evidence to suggest that more products will appear under the Surface brand name later in the year. Here's what I wrote last summer, after digging into Microsoft's public SEC filings to uncover its radical new business plan:

I would be shocked if we don’t see more PC hardware from Microsoft in the next 12 months.

Deal with it, OEMs.

Microsoft plans to pick up the pace. Dramatically.

PC makers who are willing to settle for incremental changes in the same old boring product lines can expect to suffer the same fate as Fujitsu, sliding slowly into irrelevancy. Between now and the next "crucial holiday buying season," it's imperative that PC makers who want to avoid that fate put together product lineups that aren't so, you know, PC-like.