We all know how that turned out. Dell first conquered the PC market, and the ultracompetitive environment it created drove several companies out of the market: IBM sold its PC business to Lenovo; Gateway sold itself to Acer; Hewlett-Packard acquired Compaq. Other lesser players are all but forgotten.

It’s as if Dell was a victim of the hyperefficient world it created. HP is now the world’s biggest PC maker, followed by China’s Lenovo, with Dell in third place on a global basis, as of last quarter.

PCs — consumer and business PCs — still amount to about half of Dell’s business. But there’s another way to look at Dell, and that’s from the point of view of its enterprise business. I learned this in a recent conversation with Steve Felice, Dell’s chief commercial officer. I also learned that the consumer PC business, for which Dell is still widely known in the U.S., amounts to about one-fifth of its business, while its enterprise lines of business, including commercial PCs, amount to 50 percent.

It’s all part of the long-term transformation that has been underway at Dell for a few years now. The company recently did three acquisitions in as many days, the most significant of which was for Wyse Technology.

That caught my attention. But first I wanted Felice’s reaction to the findings of a J.P. Morgan survey of 100 CIOs, saying that the release of Microsoft’s Windows 8 wouldn’t be much of a catalyst for PC buying at large companies.

(We had a pretty good talk, so, arbitrarily, I left in an eighth question from our exchange.)

AllThingsD: Steve, there’s a survey out from J.P. Morgan recently that says that CIOs from large companies don’t see Windows 8 as the sort of thing that would get them buying PCs again. That, to me, could be interpreted as bad news for Dell. Is it?

Felice: I don’t think so. Operating system changes have never been a catalyst, at least not in the corporate world. Consumers and small businesses take off with it right away. Corporations have rollout schedules, and they stick to them. Some of them are just starting to deploy Windows 7. They do their three-year roll-out schedules, and when it’s time they’ll go to Windows 8. About 55 percent of our business are the larger mid-sized and up public companies. The other 45 percent are small businesses and consumer. We’ll see some buying within that 45 percent. On the others, they will go on their normal schedule.

On the enterprise side, I was just with a bunch of CIOs here, and there are some very common themes about why I think they are going to spend some money. And it’s really to continue a transformation of their own infrastructure, to take advantage of virtualization and cloud computing and bigger pipes to transport information. There is a pretty common theme that there is more opportunity to get more out of assets. There is more optimism around moving away from legacy architectures and into open systems. The whole concept of being more “open to open” is there. We view that as good, because we’re the pure play when it comes to moving to open architectures.

What are the CIOs you talk to worried about these days?

Security. It’s easily in the top three concerns. We think we added to our portfolio two of the best assets out there. One is intended to tell you how to figure out what’s going on in their world. That’s what SecureWorks, a company we acquired recently, does. It analyzes your infrastructure and tells you where your threats are coming from and how to prevent them. And then we just announced the acquisition of SonicWall. They built a nice unified threat-management platform. From my viewpoint, it helps enable the movement to open. Some people are afraid to leave the proprietary world because they think it’s more secure.

Where are you on mobile? I read that you just killed a smartphone model. Where is Dell going on the mobile front?

I would characterize the last couple of years as us experimenting with what form factors and operating environments will work. The good thing is that we’ve never overextended ourselves in mobile, yet we’ve launched a lot of products, and we’ve learned a lot from them. We’ve launched tablets — 5-inch, 7-inch, 10-inch. We’ve launched them in emerging markets first, we’ve launched them in developed markets first. We’ve launched smartphones around the world. So we have an active smartphone that we just launched in China, and one in Japan. We just end-of-lifed one in the U.S., which is what I think you’re referring to. We have a road map of other products that are coming up. We are predominantly a commercial-oriented business that has some consumer business, but the lines are blurring.

What we’ve learned is to look at the consumer from the commercial side, not the other way around. Some companies who have done well in mobility are all about consumers and entertainment. And looking at the consumer as an individual, without any regard to how they might interact on the professional side of their life. Executives of any company I talk to say these devices are driving them crazy. They don’t know what’s happening to their information, how they get it back, nor how to interact with the other devices that people are bringing into the workplace. Or how to support them and control them. No one is dealing with that. So, generally, you’re going to see Dell think more broadly about the mobile ecosystem. When you next see devices from Dell, you’ll see us thinking more about the security of them, the end-to-end aspects of managing them, from the data center to the end user.

And yet what I’m hearing from a lot of companies is that they’re just adopting iPads, mainly because the bosses have them and love them. This is how Apple is penetrating the enterprise. How is Dell going to compete with that?

It’s unique, no question. And so it’s got some infatuation aspects to it. But then I talk to these customers, and because there isn’t a lot of alternatives, what they’re tolerating is pretty interesting. They say they have one of those products. Then the problems start coming out. First, the office applications don’t work very well, and they have trouble reading PowerPoint decks. And then they can’t wirelessly print easily, and some days they’re not able to get on the network at the office. And I look at that and say, they’re tolerating a lot because they like the form factor. Our conclusion is that there need to be some alternatives.

We’ve got the Dell XPS 13 Ultrabook, and we take it around and show it to customers, and invariably the decision-maker wants one. And then he says that if he had this, he never would have bothered with the tablet. So we took a consumer-oriented product and put pro support on it, and showed that to CIOs and said that if their executive team used it, they’d get the same support as they would on their Latitude product. So when it breaks, someone will come to the office and fix it, and you don’t have to go stand in line at the Apple store. Then we put image management on it. If you want a corporate image that has to be managed, we’ll do that. Institutions want thin and light devices, but they also want the options to secure and support them. The other thing that is happening, with ARM, you’ll get even more form factors.

Well, let’s talk about the PC, then. People keep talking about the decline of the PC. The research houses keep predicting market declines, and sometimes they materialize and sometimes they don’t. But even so, the numbers — at least globally — are flat to slightly up. Yet when you drill down to different regions, you see very different stories, with different countries growing like crazy. How does Dell see this right now?

This is a weighted math problem. The lowest growth rates are in the developed world, which will remain more of a replacement cycle world. The U.S. is like that because PC penetration is very high. Then you go to India and China, where it’s very low. What’s happening is that the emerging markets, where combined, they will be bigger than the developed world. And they are still growing rapidly, so the math is going to reverse itself. You’ll still see low-single-digit growth rates in the developed world, but healthy growth rates in emerging markets — but the emerging markets will be bigger. We still see double-digit growth in China. Look at Indonesia, there’s 300 million people just starting to buy PCs. As these countries industrialize and get more mature, they just need basic computing.

And how do those markets develop?

It comes back to the first thing I talked about. These countries don’t have the legacy baggage. They’ll grow, they’ll industrialize, they’ll need more infrastructure. And what will they buy? They’ll buy standard servers, storage, and open systems. This is happening in China, and its why we’re No. 1 in servers there.

Do you think people still associate Dell with the PC and don’t give it enough credit for its greater focus on the enterprise?

I’d have to say yes. Some of that is our own doing. We have this very large direct model, and we have a tendency to talk to customers one on one. So we tend not to do a lot of brand advertising. So our consumer advertising is more visible. If you ask people randomly what portion of our business is consumer, they’d say it’s more than half, but in fact it’s only about 20 percent. And if you ask people what portion of our business is servers and storage, they don’t know, but it’s more than 50 percent.

If you combine consumer and commercial PCs, how much is that?

About half is PC, and that’s global. But I think with all the acquisitions we’ve done, and a lot more customer testimonials we’re doing, the perception is changing. We’ve done some targeted testing of campaigns where we say, ‘Do you know that Dell does this?’ The perception of Dell as an enterprise provider skyrocketed. Brazil is an interesting case, because we entered the server and storage market there before the PC market. That’s because the only way to really be successful in Brazil with PCs is to have your own manufacturing there, because of the stiff tariffs. So in Brazil, Dell is thought of as an enterprise company. You’ll see more of a commitment this year to do more brand-oriented advertising around the enterprise.

It turns out they did nothing of the kind. In fact, PC sales grew by almost 2 percent in the first quarter of 2012. Perhaps that’s not saying much. Last year, you’ll remember, was nothing less than the second-worst year for sales in the history of the PC industry after 2001 — except at Apple, which, no surprise, turned in its best year for Mac sales ever. Perhaps it might have been more realistic to predict a bounce-off-the-bottom moment.

Anyhow, here’s what Gartner saw and what its analysts think about it:

Europe and the Middle East did better than expected and grew by almost 7 percent. Asia was below expectations and emerging markets slowed down generally.

Also, the hard drive supply problem brought on by the floods in Thailand didn’t cause nearly as many problems as some had expected. As Gartner’s Mikako Kitagawa put it: “In general, the hard-disk drive supply shortage had a limited impact on PC supply during 1Q12. There was a moderate impact on selected markets, such as low-end consumer notebooks and the white-box market in selected regions. Still, low PC demand was able to mask the tight hard drive supply overall.”

So who led the market? Look at the tables. Worldwide market is first:

Lenovo grew the most, boosting its shipments by more than 28 percent, and was strong in the EMEA market, where growth was higher than expected generally. Dell underperformed, Gartner says, and saw declines in Asia year over year.

And now the U.S. market:

Overall, as you can see, the market declined by 3.5 percent. Dell’s share fell by nearly 4 percent, while HP and Apple grew. Acer’s share fell by an eye-popping 25 percent and change.

Not a bounce, at least not as far as the U.S. is concerned.

Dell’s earnings were 51 cents and missed the consensus of analysts by a penny; the company also said that revenue would decline by 7 percent in the current quarter. In a note to clients today, Shaw Wu of Sterne Agee dropped his rating to “underperform,” the equivalent of a “sell,” arguing that Dell’s PC business continues to suffer at the competitive hands of Apple, Acer and rejuvenated Hewlett-Packard. “We are concerned with the company’s longer-term fundamental position and may face more difficulty making further operational improvements,” Wu wrote.

Richard Kugele, of Needham and Co. in New York, downgraded Dell to a “hold” from a “buy.” Rich Gardner of Citigroup also cut his rating to “hold” and dropped his target price to $19 from $20, citing declining prospects for improvements to Dell’s gross margin in the current quarter.

But the chorus of analysts wasn’t all negative. Chris Whitmore of Deutsche Bank, who last week suggested that, all things considered, Dell’s results might turn out “pretty good,” saw it differently. He blamed the ongoing shortage of hard drives brought on by last year’s flooding in Thailand and weak public sector buying, and still finds Dell attractive. The shortage, he says, was the primary reason that Dell’s gross margins — which came in at 21.7 percent — missed estimates. “Gross margins were light due to negative hard drive impact — shortages hampered the ability to sell richer high-end systems — and soft public sector results,” Whitmore wrote in a note to clients today. He maintained his “buy” rating.

Brian Marshall of ISI maintained his “neutral” rating. He wrote in a note today that Dell’s plan of shifting its revenue base away from consumer and business PCs and toward higher-value enterprise IT, software and services is going to take years. “We believe changing the composition of a $60 billion revenue base is non-trivial and takes years not quarters to successfully navigate. [We're] still scratching our heads on how earnings per share grows in 2012. … In the face of flat revenues, declining gross margins and continued operational expense growth, we struggle on how EPS will be up in 2012. We like the plan, just not the set-up.”

(Michael Dell photo by Asa Mathat)

U.S. consumers and businesses bought 71.3 million PCs, representing a drop of nearly 5 percent over 2010, when they bought more than 75 million, IDC said. So much for the year.

And the fourth quarter, traditionally one of the industry’s strong points, wasn’t much help. Shipments of PCs in the fourth quarter declined by nearly 7 percent, according to IDC; Gartner said they fell by 6 percent. Hewlett-Packard saw its U.S. shipments drop by 25 percent in the IDC report; Dell by 5 percent; Acer by 14 percent; and Toshiba by 2 percent.

HP’s flirtation with spinning off its PC division last year hurt sales, as businesses and consumers lost confidence in the company. The main beneficiary of that appears to have been China’s Lenovo, the world’s No. 2 PC maker, which saw its shipments, on a global basis, surge by 37 percent, though it’s not much of a player in the U.S. market.

For the full year, HP saw its shipments fall by nearly 5 percent; Dell’s fell by more than 8 percent; and Acer’s fell 30 percent in the U.S.

So who grew? Apple. It saw its shipments grow by 18 percent in the quarter, according to IDC, and by 21 percent in the Gartner report. As of the end of the year, IDC said, Apple’s share of the U.S. market amounted to 10.7 percent, which is up from 8.8 percent a year ago.

First, Acer introduced what it is touting as “the world’s thinnest ultrabook” (it will be interesting to see if Acer can still lay claim to that title by week’s end): The Aspire S5, which measures just 15mm at its thickest point. It weighs less than three pounds and comes with a 13.3-inch LCD display screen. It also comes with an interesting “MagicFlip” port panel that’s hidden below the hinge of the laptop. Users can open the hinge to reveal a panel of ports, including HDMI, USB 3.0 and a 20 gigabyte Thunderbolt port.

The Acer Aspire S5 Ultrabook

The Aspire S5 laptop has an Intel Core processor, a solid state drive, extended battery life and a chiclet keyboard. It’s expected to ship in the second quarter of 2012; the expected price is still TBD.

With its Aspire Timeline Ultra laptops, Acer says it is expanding on the Ultrabook it rolled out in September. The Timeline Ultra is available in 14-inch and 15-inch models; the laptops are 20mm thin, boast eight hours of battery life, have solid state and hard disk drive options, as well as HDMI and USB 3.0 ports. They feature an Intel Core processor. So again, not totally different from other Ultrabooks we’ve seen and are expecting to see more of. The Timeline Ultra does, however, have a DVD-Super Multi optical drive, which some Ultrabooks do not have, depending on their thinness and innards. The Aspire Timeline Ultra is expected to ship this quarter.

But Acer’s cloud service offerings looked a lot like a “me-too” to what Apple showed off at WWDC last June. Due to a technical glitch during the press event — and the greatest ironies of tech conferences, aside from dependably terrible cellular and Wi-Fi service, are the technical glitches — we weren’t able to get a good look at Acer’s cloud media service for syncing music and other entertainment files.

Acer’s PicStream (demonstrated via a slide that looked like Apple’s iCloud slide), promises to share photos seamlessly from smartphones to Windows-based PCs and other devices; AcerCloud Docs is designed for syncing and sharing personal and professional documents via the cloud (although it seemed Acer was mainly targeting professionals with this service). Acer stressed that these services will support Windows-based and Android devices.

Lastly, in an odd but not uncommon press conference move, Acer’s Campbell Kan quickly showed off one more tablet and offered just two bits of information about it — it has a quad-core processor and a 1080p display — before concluding the event. Last week, my colleague Ina Fried wrote about Acer’s efforts to remain relevant in the tablet market by introducing a budget-priced, 10-inch, Android-based tablet, the Acer Iconia A200.

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The Acer Iconia A200, set to go on sale Jan. 15, packs a full-size USB port, a micro-USB port and micro-SD card slot.

“Acer brings the Iconia Tab A200 to consumers at an affordable price, without making sacrifices on key tablet features such as expansion, connectivity to other devices, HD displays and cameras,” Acer’s Eric Ackerson said in a statement.

It remains to be seen whether the low price tag will be enough to make the device stand out in a crowded Android tablet market that has yet to really take off with consumers or businesses.

Initially, the A200 will run the Honeycomb version of Android, though Acer is promising that a free upgrade to Ice Cream Sandwich will be made available in February. An eight gigabyte model will sell for $329, and a 16GB version is priced at $349.

This is the port that gives Macs profoundly fast connections to external hard drives that support the technology, and which also drives high-end displays on a single shared connection.

Now there’s word out of Taiwan’s Digitimes that Intel is going to bring the technology to other PC makers as soon as April of 2012. Sony, Asustek and Acer are said to be among the first in line for Thunderbolt. Missing from that list, however, are such major PC makers as Hewlett-Packard and Dell.

Apple, which has a long history of being early to adopt input-output technologies — it was the first to put USB ports on its PCs with the first iMac in 1998, and it invented FireWire — has had Thunderbolt exclusively on the Mac since it debuted new MacBooks in February. Intel reached out to Apple in 2009 in order to popularize the technology, which was originally known as Light Peak.

And it’s going to stop peddling affordable but poorly made hardware.

“We will shift our strategy to improving profitability from pursuing market share blindly with cheap and unprofitable products,” Wang told Dow Jones. “Ultrabooks will become our key growth driver next year as customers want a lighter, thinner notebook with longer battery life. Selling more ultrabooks will also help improve our profit margins as they command higher prices.”

If things play out the way Wang hopes, Acer’s ultrabooks will drive a 10 percent increase in notebook PC sales next year and perhaps even return the company to profitability.

The country is now beginning the arduous job of cleaning up from the floods that killed upwards of 600 people and dealt a body blow to its industrial and manufacturing base.

One industry hit especially hard is the computer business. The world relies on factories in Thailand to turn out critical components used to build hard drives, and factories there are out of commission for now. This is not a trivial problem — the factories in question are not easy to replace, retool and restart once they dry out. Nor is the answer simply for the hard drive manufacturers to build new factories somewhere outside the flood zone.

This is the kind of supply chain disruption that the computer industry hasn’t seen in many years. I had a chance to talk with Steve Luczo, the CEO of Seagate Technology, for his view of the situation. Seagate has been relatively lucky in that its factories haven’t been directly impacted like those of Western Digital and Toshiba. But many companies that supply Seagate with necessary components have been hit, and it will be some time before they’re back on their feet.

Luczo told me that the computer industry as a whole — including companies who make PCs, servers, workstations and any other device that contains a hard drive, whether a set-top box or an enterprise storage device — can expect acute supply-chain disruptions to last well into 2012, and that it will take until the end of 2013 for the industry to return to its pre-flood operating posture. You read that right: It will be two years before the supply of hard drives is anywhere near “back to normal,” and there are simply no easy solutions for getting it fixed.

An estimate by the market research firm IHS iSuppli pegs the available supply at 125 million units, which is about 29 percent short of demand of 175 million units. By its reckoning, more than one-quarter of the world’s hard drive manufacturing capacity has been disrupted in one way or another, including 45 percent of the capacity devoted to making hard drives for personal computers. I spoke with Luczo by phone yesterday, and tossed in an extra eighth question because of the importance of the subject.

AllThingsD: Steve, at a high level, I think everyone understands the problem. There’s been a terrible flood in Thailand, and a lot of factories that make crucial parts for hard drives are out of commission. To that end, I think people expect this to be a temporary problem that works itself out in a couple of months. But you say it’s a much more complex problem than most people realize. You’re tracking this situation day to day, and probably hour by hour. So, how bad is it, really? And what’s likely to happen?

Luczo: What’s surprising to us is that even with all the data out there — we’re six weeks into it — there are a lot of fairly sophisticated companies that haven’t fully come to grips with the depth of the problem and the duration that is likely to occur. What is going to happen in the next couple of weeks is that the real shortage begins to show up right about now. There was already a lot of built inventory and a lot of finished goods moving through the system. And now all that is gone, and I think customers are starting to see shelves of parts go empty, and realizing that they’re not going to be filled for anywhere from one to two months. So the concern is heightened.

We heard Meg Whitman talk about this on HP’s earnings call Monday. She said HP stepped in and started doing some strategic buying. She says HP is going to see effects at least through the first half of next year. Apple talked about it on its earnings conference call, too. Are you hearing from them?

Tim Cook at Apple was way in front of this. I saw Tim the first week it happened, and took him through the situation, and in 15 minutes he understood the magnitude of it. Meg was on the second week of her job as CEO when I went to see her, and she got it right away. HP’s procurement VP, Tony Prophet, was also early to understand this. Companies like that reached out to us early on, because they understood that this is going to be an extended problem. They started asking for longer supply agreements. Deals that would typically last about a year, they’re now asking for two years.

How bad is it really going to be? What’s your outlier worst-case scenario, and then what do you think is a little more realistic?

If you think pre-flood, a mix [of products] that the customers need, the industry had the capacity to ship about 190 million units a quarter. Pre-flood, we expected the demand to be pretty consistent at about 180 million a quarter, with a bump in September 2012 for Windows 8. We now believe the March quarter is going to much more difficult than the December quarter, and December is going to be about 120 million or so. We think the March quarter will be about 120 million, in the best-case scenario. And that’s with customers mixing down pretty aggressively; and by that, I mean companies like Western Digital, who don’t have access to the sliders [a critical component in a drive], are shipping one- and two-headed devices so they can ship more units. So instead of shipping a drive that contains two disks and four heads, which is what the market needs right now, they’ll be shipping a one-disk, one-head or one-desk, two-head product. They’ll be maximizing the units they can sell, rather than shipping the product the customer actually needs. … So we see something like 130 million for March on the optimistic side, and then 150 million for June, 170 for September and then 190 million for December. And so by the end of 2012 you’re back to being close to industry demand. But even then, you’ve not included the impact of that missed 100 million units. And that will take another year to absorb, because it’s not like the industry is building new factories to chase that demand. We can’t over-invest to meet some bubble and then get stuck with excess capacity.

I think, intuitively, people expected companies like Seagate to just build more factories outside of the flood zone, but it’s not that simple, is it? Would this not be a moment to add capacity?

There are some in the investment community who think that’s what is going to happen, and that there will end up being a supply glut after all this is over, but it’s not the case. For us, it’s more a function of how to recover the supply chain and then work with the customer to get a good read on what their needs are for the next several quarters. If we see a multiquarter shortage that goes beyond what I described before, then we would think about maybe putting some capital in place. But we’re not going to do that to solve a temporary problem, because we end up being stuck with the excess capacity. Now if it turns out there is no recovery, and then the industry is more constrained than I first described — and that, by June, the industry is still 30-40 million units short and looks like it will be for the next six quarters — we might revisit. But then we’d want longer-term commitments to make sure we’re not overinvesting. But we’re not to that point yet.

What is this doing to prices? And what does that mean to the person who wants to buy a computer or server this year or next year?

If you look at a 10-year moving average trend, the industry has in general seen prices come down about 2 to 3 percent a quarter, and that is for a particular product. In 2009, there was a little price erosion, and that was because the storage industry recovered quickly from the recession. And there had been massive capital cutbacks, so there were big shortfalls through all of 2009 and into 2010. Then, when the Greece crisis happened, that put a big flatline on a lot of growth, and the industry had put in a lot of capital because everyone expected there would be growth. So, since spring of 2010, the price erosion has been higher than normal, which would show that supply is greater than demand. And what this flood has done is drive the supply curve down, while the demand curve has stayed constant. For OEMs [original equipment manufacturers, or the PC and server manufacturers like Apple, HP and Dell, who buy directly from Seagate], you’re seeing an average increase of about 20 percent, and in the channel [resellers who sell parts to smaller PC and server vendors], probably much higher. So all the sensational quotes you see about pricing are about those that occur in the channel, where we have no control whatsoever.

The markups in the channel are much higher? Are the channel guys taking advantage of this?

Yes, they’re higher, but I don’t think they’re taking advantage. I’ve heard stories about drives that we sell to OEMs for $60 that show up in the channel at $105. Normally the channel price is within about 10 percent of the OEM price. It’s just the law of supply and demand. They can’t get supply. The channel is getting about a third, at most, of the supply they would typically get. The OEMs are the ones with the supply agreements, so everyone in the channel is way short. In some market segments, supply is about 70 percent below what the demand is. And so those shortages are very acute. The channel is selling the few drives that are out there to whoever needs them the most and is willing to pay for them.

So what does all this mean for Seagate, specifically?

For us it’s a different story, because we’re going to be driving more volume than our competitors, because we’re not as directly affected, and we’re going to be making some  technology transitions. When we do that, it lets us take cost out of our product, so we can offer more capacity for the same or fewer parts. That helps us drive down pricing. Our goal is to recapture some of the more aggressive pricing of the last eight quarters, in order to sort of get our business back in balance. Our long-term business model calls for gross margins of 22 to 26 percent. And we use our manufacturing expertise to drive down our costs and then pass that on to our customers. This quarter, end users really won’t see it, because product has been built and has been on the shelves. As the shortages just started occurring, you’re starting to see prices increase in the channel. And then at the OEM there will be shortages in some high-value areas like enterprise storage or cloud computing. You’re going to have to see price increases, because there’s such big shortages.

One thing that occurred to me when I first wrote about this a month or so ago is that it represents an opportunity for the flash memory chip companies to make some inroads against hard-drive guys like you, mainly on notebooks. Is there a threat that flash could pick up some of the demand?

Some of it, but not very much. I think to the extent that there is a high value purchaser who can afford to pay $200 for 100 gigabytes, then that market will expand from 1-2 percent to 3-4 percent. Of the 35 to 40 percent shortage that exists, could you see a little of that get absorbed by silicon? The answer is yes. But there’s a cap. There’s just not enough of a raw supply of silicon to meet all the demand. Our industry will ship 400 exabytes this year. We would have shipped 450, were it not for the floods. Of that, 180 exabytes is notebooks. Reduce that by 30 percent, and you get about 55 or 60 exabytes. If you were to take all of the capacity from Samsung’s newest state-of-the-art flash factory, and dedicated it just to notebooks, it would only put out 7 exabytes a year. Plus, there are already other markets demanding flash, like  tablets and cellphones and other things. So it’s not like you can steal from those other markets. You’re not going to take a $32 product and replace it with a $350 product. Can you do it at the edges of the market? Sure. But the threat is capped by the amount of silicon available and the price point for flash storage, which is still an order of magnitude higher.

According to the latest metrics from Gartner, Mac shipments to Western Europe were up 19.6 percent in the third quarter, a period that saw an 11.4 percent decline across the broader market.

PC shipments in Western Europe totaled 14.8 million units in the third quarter of 2011, an 11.4 percent decline from the same period last year, according to Gartner. Among the top five PC makers, only Apple and Asus resisted that downward spiral, which slowed Hewlett-Packard’s growth by 7.5 percent, Dell’s by 10 percent and Acer’s by a gruesome 45.1 percent.

A similar scene played out in the U.K., though there it was Apple and Samsung that led the market with year-over-year growth of 21.8 percent and 39 percent, respectively. Again, the broader market suffered a nasty decline, seeing growth slip by 11 percent year over year, and HP, Dell and others all suffered for it. The third quarter was particularly nasty for Acer, which saw its U.K. sales plummet by 53.1 percent.

Keep in mind, we’re talking about the third quarter here, traditionally a strong one driven by back-to-school sales.

So what’s behind the decline? Hard to say. Gartner theorizes that one factor is consumer confidence that’s been beaten into submission by disheartening economic issues. That certainly makes sense, though it doesn’t really explain the performance of Apple, Asus and Samsung, which all defied the downward trend. That they were able to grow PC shipments during such a time suggests there’s some significant competive rebalancing going on in the market right now.

According to Morgan Stanley’s new China PC Survey, 21 percent of consumers considering the purchase of a new PC would like it to be a Mac. That’s more than said the same of Lenovo, Asus, Acer, Sony, Samsung, Hewlett-Packard and Dell. It’s also significantly more than the Mac’s current market share in the country, which hovers around about 5 percent.

So great news for Apple, right? Sure, were it not for one caveat. Most Macs are well beyond the $600 average price Chinese consumers typically pay for a PC. And few survey respondents said they were willing to meet those prices.

“Apple’s share gains in the near term are likely limited to the 7% of respondents who are willing to pay over $1,100 for a PC,” said Morgan Stanley analyst Katy Huberty. “In the long term, as Chinese consumers become more affluent, we believe Apple could see further share gains as it is the most desirable brand.”

And that does seem to be the trend here. Already the company’s growing retail presence in the region, along with a fast-developing brand preference for its products among higher-income consumers, is generating blockbuster sales and profits. As Apple CEO Tim Cook said earlier this year, “In my lifetime I’ve never seen a country with as many people rising into the middle class aspiring to buy products that Apple makes. It’s an area of enormous opportunity.”