Is Apple Stealing PC Thunder?

When Apple Inc. (NASDAQ:AAPL) first unveiled the original iPad in 2010, many dismissed it simply as a large iPod touch. It was not given a fighting chance in the tech space as it was unthinkable that consumers and businesses would adopt a touch-only computing experience outside of smartphones and iPods. Fast forward two years and the entire computer industry is struggling to keep up with Apple’s dominance.

Earlier this year, Apple launched the highly anticipated third generation iPad. The most valuable brand in the world sold 3 million units of the new iPad in the opening weekend alone. By the end of the quarter, it sold nearly 12 million iPads, representing a 151 percent unit increase over the same period a year earlier. Now, a new report by one of the world’s largest financial firms indicates how strongly the iPad has affected traditional desktop computers.

Morgan Stanley (NYSE:MS) recently released data from its AlphaWise global consumer survey that found tablet demand and PC cannibalization rates were higher than previously predicted. In a 37-page report, the firm says 37 percent of tablet purchases last year came at the expense of possible PC shipments, higher than the 29 percent cannibalization rate initially expected. Furthermore, Katy Huberty, Morgan Stanley’s chief Apple analyst, expects the tablet market to hit 133 million shipments in 2012 and 216 million next year, representing a 40 percent and 89 percent increase from prior estimates. The success of tablets revolves almost solely around the iPad, which accounted for 62 percent of tablet shipments last year and that number even excluded the new iPad.

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The success of Apple was been disastrous for “old tech” firms such as Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Co. (NYSE:HPQ). Year-to-date, shares of both companies have fallen between 13 and 16 percent, while Apple has surged 40 percent. In fact, Hewlett-Packard is now trading at new 7-year lows at $21 per share and is the worst performer in the Dow Jones Industrial Average this year. Consumers are demanding sleek innovative products and neither Dell or HP have been able to deliver.

Barclays Capital’s Ben Reitzes also believes that Apple’s success could be trouble for traditional disk drives made by Western Digital (NYSE:WDC) and Seagate Technology (NASDAQ:STX). Reitzes, who rates Apple as Overweight at a price target of $750, explained, “It can be argued that iPads and iPhones are being used for more PC tasks, elongating PC buying cycles and replacing some PCs altogether. As a result, NAND in the iPad and iPhone is also adversely impacting HDD demand for PCs. On the positive side, we believe that mobility trends are driving data growth trends, which help sales of enterprise based HDDs (even though flash is also rapidly growing in the enterprise too). As a result, Apple is arguably fueling an interesting trend that is transitioning exabytes away from PCs and toward data centers – a capacity shift that could impact drive makers for years to come.”

Apple established the tablet category in early 2010 and shipped more iPads in the December 2011 quarter than any single PC vendor shipped PCs. The company is expected to receive more competition this fall when Microsoft Corp. (NASDAQ:MSFT) launches its  new Windows tablet platform, but given Apple’s massive head start, the Windows 8 reboot will need to reinvent itself as new tech, rather than old tech.

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