Updated from July 11 to provide more analyst comments in the thirteenth paragraph.
NEW YORK ( TheStreet) -- The PC market continues to decline sharply, falling 10.9% year-over-year in the second quarter to just 76 million units, according to Gartner. That's going to put a lot of pressure on companies such as Microsoft (MSFT - Get Report), HP (HPQ - Get Report) and even Apple (AAPL - Get Report), as the companies struggle to figure out where the bottom is.
Much of the blame continues to be on Windows 8, which has been poorly received in the market place. Microsoft wound up having to make major changed to Windows 8.1 in light of the poor reception from Windows 8, including bringing back the "Start" button. Ultrabooks, which the PC industry hoped would become a strong competitor to Apple's MacBook Air, have not taken off as hoped.
For a company like Microsoft, the PC slowdown may not affect it that greatly, despite the obvious headwinds. Credit Suisse analyst Philip Winslow, who was expecting 78.8 million PCs sold during the quarter, notes that the U.S. market is Microsoft's best market, due to low piracy rates and the professional market actually outperforming expectations."Combining these factors, we believe the overall negative impact to revenue estimates for Microsoft should be more muted this quarter as compared with recent downside surprises in PCs," Winslow wrote in his report. Winslow rates Microsoft "outperform" with a $38 price target. For the actual PC makers themselves, such as HP and Dell (DELL - Get Report), the story is a little more bleak. These companies do not have the luxury of selling software to all the original equipment manufacturers like Microsoft does. Lenovo, which claimed the top spot from HP with 16.7% market share, runs Windows, and allows Microsoft to at least diversify its revenue base among hardware makers. HP, Dell, and to a much lesser extent Apple, don't have that luxury. Topeka Capital Markets analyst Brian White expects HP and Dell to continue losing share, as tablets continue to eat away at PC-spend dollars, and as Asian competitors, such as Lenovo, continue to rise. "We believe Lenovo will ultimately be the dominant player in the PC market and we expect other Asia-based vendors to rise in prominence, while we expect Hewlett-Packard and Dell to continue losing PC share in the coming years," White wrote in his note. HP owns 16.3% of the market as of the end of the second quarter, according to Gartner, and 16.4% according to IDC. One bright spot to note is that while Lenovo took the top spot overall, HP actually gained ground in the important Asia-Pacific (APAC) region. RBC Capital Markets analyst Amit Daryanani notes the company is benefiting from building out its presence in this region. "This follows March-qtr when HPQ maintained the top spot across all major categories in China and India. As a result, Lenovo actually lost market share in APAC, particularly in China," Daryanani wrote in his note.
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