Hammered by the popularity of tablets and the unpopularity of Windows 8, PC sales plunged 14 percent in the first three months of 2013 -- the worst drop in nearly 20 years.
The report Wednesday surprised even the firm that produced it, International Data Corp., which had predicted sales would drop 7.7 percent. More significantly, it's a sign that the era of the personal computer revolution, dominated by Microsoft and Santa Clara-based Intel (INTC), is nearing an end, as new gadgets take center stage at homes and in businesses around the world.
The effects of sluggish PC sales will be felt throughout Silicon Valley by software and hardware companies, ranging from giant Hewlett-Packard (HPQ) to the tiniest startups, that provide everything from the PCs themselves, to the chips that power them, to the computer mice attached to them.
For companies already struggling to transition to tablets and smartphones, "the only message here is, 'Go faster,' " said Roger L. Kay, founder and president of Endpoint Technologies Associates. "Unfortunately, some will get only part way through before some of the smaller companies go bankrupt. This could take some companies under."
One benefit from the plunge in sales: Consumers can expect to see dramatic discounts of as much as 30 percent in the next three months as manufacturers race to unload inventory before the annual June switch to new products.
"They'll have to get aggressive on prices or give rebates to move inventory, and the savings will be passed through to the consumer," said Rob Enderle of the Enderle Group. "Some units will be shipped overseas, but here they're going to have to blow out inventory in the next three months."
The 76.3 million PCs sold in the first quarter represent a dramatic reversal of fortune for an industry that saw annual PC shipments more than double from 156 million in 2000 to almost 353 million in 2011.
After growing just 2 percent in 2011, PC sales began steadily falling in the face of growing competition from tablets and smartphones and a disappointing reception to sometimes cumbersome new PC technology, including Windows 8.
Microsoft launched Windows 8 in October hoping to help bolster PC sales, but IDC said the software instead exacerbated the decline in sales.
"It's a terrible product," said Trip Chowdhry, managing director of equity research for Global Equities Research. "It's the wrong product with the wrong ecosystem trying to address the wrong environment. Customers want perfection and the Windows ecosystem failed to deliver perfection."
While HP continued to lead the industry with worldwide sales of 11.99 million PCs, the Palo Alto tech giant's PC sales were down 23 percent from the year before. And despite "an aggressive fourth quarter," HP sales were flat during the holidays.
IDC said Apple (AAPL) fared better than the overall U.S. market but still saw shipments decline as its PCs face competition from its own iPads. Its first-quarter PC sales this year declined 7.5 percent from the same quarter last year.
In a less dire but nevertheless pessimistic report, rival tech research firm Gartner on Wednesday issued PC sales figures that showed an 11.2 percent drop in quarterly sales based on worldwide shipments of 79.2 million units.
Gartner, which uses different methodology from IDC, said it was the first time that PC shipments fell below 80 million units since the second quarter of 2009.
But there was some good news in the Gartner report.
Without citing numbers, Gartner said that PC business sales actually increased, but were dragged down by lousy consumer PC sales.
"Consumers are migrating ... from PCs to other connected devices, such as tablets and smartphones," Mikako Kitagawa, Gartner's principal analyst, said in a statement. "Even emerging markets, where PC penetration is low, are not expected to be a strong growth area for PC vendors."
Although their numbers differ, the dual reports sent a clear message to companies including HP, Dell, Intel, AMD, Acer and Adobe (ADBE) "that have a lot riding on a market that is going down quickly," Kay said.
In January, for instance, Intel announced that its profit fell 15 percent from 2011 and blamed its financial slump on weakened PC sales amid a sluggish global economy.
Late last year, companies including AMD announced layoffs and acknowledged that they had been slow to react to the changing PC landscape.
David Daoud, IDC's research director for personal computing, said in a statement that "although the reduction in shipments was not a surprise, the magnitude of the contraction is both surprising and worrisome. The industry is going through a critical crossroads, and strategic choices will have to be made as to how to compete with the proliferation of alternative devices and remain relevant to the consumer."
In the United States, PC sales of 14.2 million represented a 12.7 percent drop from the year before. The Asia Pacific region's identical 12.7 percent decline represented the first double-digit drop in PC sales there and was particularly hurt by sluggish sales in China, IDC said.
Contact Dan Nakaso at 408-271-3648. Follow him at Twitter.com/dannakaso.