This became clear today as we were commenting on a post about both Intel and ARM dropping expectations. At first the decline would appear to be more about saturation or consumer anticipation than any other factors. We all know that some consumers are waiting to buy a new PC until Windows 8 hits the market (either to get Windows 8 or to get in on sales of older devices). The same can be said for the non-x86 tablet space as some are waiting to see what Windows RT will bring and also looking for the deals that Android tablets are sure to have to entice people. Still the effect seems to be larger than expected. Both the back to school and tax season purchasing cycles were strong with Intel and Microsoft announcing record quarters on the back of the tax seasons purchases.  However, things are not looking so good for this quarter as Intel and ARM manufacturers are predicting a slowdown in sales of chips.

Now there is a good deal of saturation in the market as just about everyone has a tablet or smart phone these days and there has been very little in the PC world to keep the average consumer happy, but there also appears to be an external factor to this decline: the cloud. Not all that long ago AMD CEO Rory Reed made the statement that there is more than enough CPU power in all the computers on the planet and in one respect he is right; most consumers do not feel they need more and more power. They are happy with what they have and unless there is a real need they are unlikely to update their hardware. This is going to be pushed further by new and more interesting cloud services. Why do you need the latest and greatest CPU or GPU when your game can be rendered in the cloud and sent piece by piece to your computer, tablet or even phone? We watched LucidLogix give a demo of this at CES this year with running games like Modern Warfare 2 on systems that would not even be able to run locally. nVidia has announced their GeForce Grid for gaming and advanced tasks, Citrix has launched a new series of products to put the computing power in the datacenter (or private cloud) and Microsoft, Amazon, VMware and others are pushing their own versions of these services.

Right now we are guessing that many consumers and even CIOs are wondering why they need to spend money on newer and more powerful desktops or laptops when they can leverage these services that do not require raw computing power. The cloud has a very strong lure in predictable costs and revenue which is something that companies and consumers want to see. If you know what your yearly expenditures will be you can plan accordingly. Microsoft with Windows 8 and Windows RT is banking on this and hoping that people will buy into their services including potentially subsidizing the cost of some tablets like they do with the Xbox. We know from conversations and presentations from Citrix that they are pushing their products to all levels of the business market as a way to reduce upgrade cycle costs and also to extend the power of the data center to the desktop. The cost overall costs savings are even overcoming many people’s security concerns the potential risk is worth the extra money saved for many CFOs.

So while we know that PC, tablet and even smart phone sales are starting to taper off it looks like it is not due to competition or market dominance by one group or the other. It looks more and more likely that the decline could be related to the increase in cloud service offerings from people like Microsoft, Citrix, VMware, Amazon, Google, and other less well-known companies. It is a little funny though as people were concerned that Microsoft’s move to Windows 8 and Windows RT would hurt their OEM partners in terms of sales and it looks like it actually is. Just not for the reasons that many though. The Surface and Surface Pro might have less impact than the fact that due to the cloud, consumers and corporations might not feel the need to upgrade that old hardware any time soon.

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