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.

In an interview with Reuters, Krzanich says he has fine-tuned the company’s supply chain in order to meet an anticipated demand for tablets. “We will start to see more and more of our capacity and our output go to things that are mobile, like phones and tablets and other devices,” he tells the global newswire.

Indeed, when the man responsible for Intel’s massive global chip-manufacturing operation speaks, he does so with the authority of a company that tracks the pulse of demand for chips obsessively, so he doesn’t make so public a statement lightly.

Yet the basic competitive problem remains. While Intel still dominates the roughly 300-million-unit-per-year market for PC microprocessors, it has struggled to compete against chips based on designs from the British chip designer ARM, which power most of the world’s smartphones and tablets — including, not insignificantly, the iPad. And while Intel’s lower-power Medfield-generation chip has landed in designs from Lenovo and Motorola Mobility, the wins are seen as progress in a race in which it was already well behind the leader.

Perhaps more interesting is how Reuters casually refers to Krzanich as a candidate to succeed CEO Paul Otellini. Intel shook up its management ranks in January, and promoted Krzanich to COO. Covering Intel includes paying attention to a constant drumbeat of speculation about who the next boss is going to be. Otellini is 61, and the company’s mandatory retirement age is 65, so the succession race, and the perennial handicapping chatter that goes with it, will be something of a marathon.

Krzanich would be a logical successor, mainly because most Intel CEOs become COO first, including both Otellini and his predecessor Craig Barrett. Yet there’s still one rival who bears continued attention: Sean Maloney, the English-born current head of Intel China, had been widely seen as the leading contender before suffering a stroke two years ago. However, people who know him say his recovery is remarkable.

I noted Maloney’s return to competitive rowing last year. A September profile of Maloney in Fortune had more to say on that subject. While he has largely recovered physically, the main lingering effect of the stroke has been on his speech. If he can get close to sounding as he did before the stroke, we may have a real horse race on our hands.

While 368 million units — the number Gartner reckons will be sold this year — seems like an awful lot, it amounts to growth of only 4.4 percent over 2011. The economy — Europe is still weak amid ongoing sovereign debt problems, plus supply chain troubles brought on by the flooding in Thailand where most of the world’s hard drives are made — is weighing the market down, Gartner says.

What will save it? Windows 8 and Ultrabooks, but not before 2013, when Gartner says to expect sales of 400 million PCs. They might stimulate renewed interest among consumers and businesses. But it’s hard to say.

What about Apple’s iPad and other tablets running Android eating into PC sales? There’s no question that they do. But that impact is relative: Gartner last sized up the scope of the tablet market last fall, and pegged it at 64 million units in 2012, which is probably conservative, seeing as how Apple sold 15 million iPads in the fourth quarter of 2011.

What has often happened with forecasts like this is that chipmaker Intel gets batted around a bit in a negative way, as financial analysts work the forecasts into their own expectations for the stock. If PC sales are slowing, the thinking goes, then Intel, which supplies most of the world’s PC microprocessors, will no doubt suffer.

Intel has tended to do well despite these forecasts, and cites growth in certain developing markets, like Brazil, India and Russia, where Gartner and other research firms have more limited visibility, as keeping demand for its chips growing.

Gartner tries to address that point in a summary of its forecast: Emerging markets will be key to driving growth, says its analyst, Ranjit Atwal, and most of the growth in the PC business will come from these countries through 2016. But the upshot is that if all you can think about is buying a new iPad and not a new PC, you’re not exactly alone in the world.

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.

The one getting all the attention is an offering in the Ultrabook category that’s priced at $900. It’s called the HP Folio¹³, and aside from its price, its headline feature is that it delivers a full nine hours of battery life.

The Ultrabook is a concept primarily being pushed by Intel, so much so that Intel even owns the trademark rights to the name. Inside the Folio¹³ are the latest Intel Core processors. It represents the hopes of a PC industry that has seen anemic sales with little sign of a bounceback, though that depends on whom you ask.

Major challenges have been the continued popularity among consumers of Apple’s iPad, and to a lesser extent other tablets, and the impressive sales of Apple’s MacBook Air, which now accounts for nearly a third of Apple’s notebook sales. It may not be an Ultrabook technically, but conceptually the similarities are substantial: Thin, light, sporting solid-state drives and speedy boot-up times.

And while the MacBook Air is a big winner for Apple, there’s as yet little evidence that there’s much demand for a similar product running Windows. Last month, it emerged that Acer and Asus expect to sell only 100,000 each by the of 2011, which would amount to between one third and one half of what they originally hoped.

Yes, it’s early days for Ultrabooks — machines that support Intel’s full design vision won’t be on the market for another several months. And the industry is just now starting to bang the drum seriously for the Ultrabook. Asus Chairman Jonney Shih talked about the category in an interview with Walt Mossberg at AsiaD last month.

In its press releases, HP expressed the hopes of an entire industry when it quoted IDC analyst Crawford Del Prete saying he expects PC makers — including HP — to sell 95 million Ultrabooks by 2015. At their current levels, there’s nowhere to go but up.

That’s a 20 percent increase over the first half of the year. And, as you can see from the chart below, the spike in sales occurred with the July launch of the new hardware and has been trending upward ever since. So in four months the Air has gone from less than 10 percent of Apple’s notebook business to nearly a third of it. How much will it comprise by 2012?

Close to 50 percent? That might seem like a stretch, though some analysts have been forecasting it for a while. Back in July, Deutsche Bank’s Chris Whitmore predicted that sales of the Air could ramp to as high as 1.5 million per quarter, which is indeed about half of Apple’s MacBook business. Obviously, they’ve still got a way to go. But we haven’t yet hit the holiday consumer binge. And 2012 could bring with it a new 15-inch Air, destined to drive sales of the machine higher still …

AMD — which designs semiconductors that serve as calculating engines in computers, servers and game consoles — has benefitted from strong demand for its new chips that combine graphics and computing on the same piece of silicon.

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The Taiwan personal-computer maker had previously said that it expected a profit in 2011, but Acer Chief Executive J.T. Wang said Wednesday that inventory adjustments, falling demand for notebook PCs and a weakening global economy led to a change in outlook.

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Doug Freedman, an analyst who covers the chip sector for Gleacher & Co. in San Francisco, trimmed his estimates on both Intel and on its smaller rival Advanced Micro Devices amid a weakened PC market that is running well behind the typical seasonal patterns. Last week, market researcher Gartner reported that worldwide PC shipments grew less than three percent over the year-ago period, as consumers remain focused on tablets and smartphones and hold off on upgrading their desktops and notebooks.

At a high level, that’s not good news for Intel and AMD, both of which have yet to penetrate the tablet market in any meaningful way. And both are grappling with the impending entrance of competing chips — based on designs from ARM, from vendors like Nvidia and Qualcomm — burrowing their way into new consumer notebooks.

In a July 15 note to clients, Freedman cut his estimates on both Intel and AMD for the quarter ending in June and the quarter ending in September. He expects Intel to report sales of $12.7 billion, which is about $100 million below the street consensus of $12.8 billion. He also expects Intel to report per-share earnings of 53 cents, which would amount to a two-cent improvement over the year-ago quarter.

The quarter being reported today isn’t the story, however: It’s September. Typically it’s a seasonally strong quarter, as college students head back to school with new notebooks under their arms. This year Freedman thinks PC sales will lag behind historical patterns. He trimmed his September quarter revenue forecast to $13.16 billion, down from $13.43 billion — or $300 million below the street view — and knocked it down by two cents to 59 cents, a penny above the street.

Intel has, in recent quarters, taken a fairly aggressive stance on the state of the PC market, and has criticized analysts for fanning investor fears. “Management should offer more subdued PC unit growth expectations thereby alleviating investor fear that Intel is setting its bar too high,” Freedman wrote. One other thing Intel has in its favor is that the average selling price of chips is edging upward, which should give it a slight hedge against the weaker market. This should help keep gross margins — a key metric for Intel — in the higher end of the 59 to 63 percent range the company said to expect. He also says that Intel could deliver a surprise with better-than-expected results from other parts of its operations, namely its flash memory unit, which makes solid-state hard drives.

For AMD, which reports its results tomorrow, the picture is a mixed bag. The search for a new CEO is now in its sixth month, with no sign of being resolved anytime soon. Freedman doesn’t expect a CEO to be named today nor in the near term. Finding an external candidate is proving harder than expected. (Note to Freedman: You don’t say.) Pressure on its share price, thanks to short-sellers, has created a buying opportunity in the near term.

Even so, Freedman trimmed his estimates for AMD’s June and September quarters. He expects AMD to report sales of $1.55 billion, down from $1.6 billion previously, which would amount to a four percent decline in year-on-year sales. He also shaved a penny off his EPS estimate to nine cents from 10. For September, he expects AMD to report sales of $1.63 billion, down from $1.7 billion before, and cut his EPS estimate to 16 cents from 20.

I’ll be back later today to cover Intel earnings live. See you then.

The firm has cut its growth estimate on PC sales in 2011 almost in half. In February, it said PC shipments would grow more than 7 percent. Now it says shipments will grow by only a little more than 4 percent. The reasons are a combination of things you can probably guess: A tightening economic outlook, a saturation in developed markets, and, well, the iPad. IDC uses the phrase “competing products,” but we all know that the competing product of the moment is tablets, and when you talk tablets, you’re talking about Apple’s iPad. Even so, IDC says 2011 will be a down year compared to 2012 through 2015, when growth is expected to head north of 10 percent.

The 2009 consumer-driven boom cycle in notebooks and mini-notebooks has faded. And shipments in the first quarter of 2011 declined by more than 4 percent versus the same period a year ago. That drop was only offset a little by a 3 percent growth in shipments to companies. The consumer slowdown was worst in the U.S., Canada and Europe, IDC says. Add to that the Japanese earthquake, the Arab Spring, and a dour economics outlook, and you end up with a market that’s going to grow a lot slower than previously expected.

As we’ve seen, these forecasts initially tend to impact the share prices of companies in the PC ecosystem like Intel, Advanced Micro Devices, hard drive makers like Seagate, not to mention the PC makers themselves like Hewlett-Packard and Dell. But remember what happened when Intel last reported its quarterly earnings. CEO Paul Otellini slapped down the market research firms in comments made on a conference call with analysts.

At the time, he said, “Our views differ from the views of the analysts,” and that, “Our projection for 2011 remains in the low double-digit range.” If you see Intel cutting its estimates ahead of its next earnings call–and there’s no evidence of that happening–you know it’s getting serious.

Update:An Intel spokeswoman says the company is standing by the forecast it gave in the second quarter. For the record the company said last month that it expects PC unit shipments to grow 11 percent this year notwithstanding any impact from tablet sales. It also said it expects revenue to be flat in the second quarter versus the first quarter, which would be an improvement over the usual decline the company sees at this time of year. I talked briefly with Intel about this today, but Don Clark at The Wall Street Journal has more on it.

Clearly it still sees a different market than IDC does, and wants the market to know it. We’ll see how it all turns out soon, as the second quarter comes to a close in about three weeks.

When he first joined Google nearly seven years ago to start its enterprise division, Gmail was barely out of the gate and Blogger was the search giant’s most notable acquisition. What could Google offer enterprises that they weren’t already getting from Microsoft and Oracle and IBM and scores of other established software and hardware vendors?

The answer? An alternative. Sheth pitched Google’s trio of senior executives–Eric Schmidt, Larry Page and Sergey Brin–on the idea of experimenting with standard office applications–a word processor, a spreadsheet–that operated entirely within a browser. The product evolved into Google Apps, and while Microsoft Office still dominates the enterprise desktop, it’s widely accepted that Google Apps has made some important inroads against it: 3 million businesses use it in some way, and some 30 million people use it in their businesses.

Aside from the scores of companies, governments and non-profits that have adopted it, there are millions of college students using it, attracted by the zero-dollar price tag. Microsoft has responded with its own cloud-based office offering, Office 365, but its clear that Redmond’s traditional grip on the enterprise desktop isn’t quite as tight as it once was.

Now Sheth has an even bigger target in mind. If Office isn’t so sacred, why does Windows have to be? As the Group Product Manager Chrome OS for Business, he makes an interesting argument that the Redmond-centric world of corporate desktops is quietly nursing a desire for change. Where will it come from? A combination of cloud computing, and a desktop that’s stripped down to nothing but a browser. I talked with Sheth by phone earlier this month and my first question was about his education.

NewEnterprise: You did your undergraduate degree in electrical engineering, but now you work in software. Circuit design wasn’t for you?

I realized I liked software a lot more than hardware. But I was most of the way through with electrical engineering at Stanford. So I did my masters in software.

Does having been educated first on hardware give you a different perspective on any of the work you’re doing at Google?

It is actually relevant. A lot of what I’ve done involves software and user-facing interfaces, but it also involves a lot of infrastructure. When you look at VMWare, which is where I worked before Google, it’s about what you can do with a combination of hardware and software and change the game. It’s similar with Google Apps. It’s a big set of user-facing applications, but the big thing is the cloud computing infrastructure that’s underneath. The fundamental question is about how you wire computers together in the most efficient way possible. That is really the bread and butter underneath Google Apps. And finally with Chrome OS it’s the same question: What can you do to the form factor of the hardware if you’re really only running a browser on it. The background in hardware has served me well.

So you joined Google about seven years ago with the mission of creating something–you basically had a blank sheet of paper–that Google could offer the enterprise. And your first idea got shot down. What was it?

At the time I joined Google the enterprise division was literally 25 people. We had a few engineers and salespeople, and we brought in a manager, Dave Girouard. I came in with the explicit mission of starting something else within Google that was to be aimed at businesses. And that something else was completely undefined. When I was still at VMware, a friend sent me a Gmail invite, and I started using it, and it was better than my corporate mail. I thought it could be a very interesting enterprise product. After I joined, I pitched Eric, Larry and Sergey on the idea of putting Gmail into an appliance and shipping it out to corporations. They didn’t go for it. I went back six months later, with some new insight, specifically that we could use our server architecture to make it easier for businesses and educational institutions to deploy and manage email, and that from there we could move up-market to deploy applications. We got exactly one engineer to work on that.

It was very much like running a start-up. I was the product manager and was tasked with starting this new business and we went through all the classic things that a start-up does. Building the product, building the team, selling the vision to an early set of adopters–San Jose City College was our first college customer and Northwestern and Arizona State followed after that. We started small and incubated it within Google. We did a lot of experimenting with that small team to see what was viable and eventually we were able to get more resources to make it bigger.

So how does the Google Apps experience compare to your new role in building a business around Chrome OS for businesses?

It’s very similar. In Chrome OS I’m back in start-up mode. Essentially I’m trying to build a vision. We have a small team of people that all sit together in one area, building out the business model, and we’re trying to start small and grow from there. One way to look at Google is as a closed confederation of start-ups. All these teams are empowered to build something that is visionary. But we all have a lot of leverage behind us, and so we’re able to do a lot more than we ever would have been able to do if we were a small company.

I see a potential problem there: Don’t all these start-ups within Google run the risk of creating independent silos or fiefdoms that aren’t all on the same page? We hear a lot of criticism of the silos at companies like Sony or even Microsoft. Even at Google, there’s Google Voice, which is a great product but doesn’t really fit with anything else, though I understand it eventually will. But how do you avoid this silo problem?

It’s a great question, and its something we’ve thought about a lot. There are basically two extremes. The first extreme is on one hand you have different teams doing things completely different from each other. The other extreme requires that everything be integrated extremely well together. We tried to find a happy medium. The benefit for one is that you can move quickly. But if you do the other extreme, you slow down innovation. Your project may take several times longer. One big advantage is the Google infrastructure is all there. You don’t have to think about user authentication or how to store files. That’s all done for you, so everyone is using the same infrastructure. A lot of the parts you need are there and you just build on top of them. You can never strike a perfect balance, but we think ours is pretty good.

So what’s your mission with the Chrome OS?

My mission is to bring Chrome to business and to ask how we make it something that can reshape the enterprise desktop. The thing that was really intriguing for me, is that cloud computing has done so much for businesses. You don’t need to think about deploying the hardware, you can just turn things on. You don’t need to worry about massive up-front payments for hardware, you can just pay monthly for what you use. And your applications just keep getting better. In my mind the cloud really stops at the desktop.

The desktop is tremendously hard to manage. It costs a lot to maintain, most of the cost for a business is all in the maintenance. It doesn’t get better over time, it gets slower as you use it. I think there’s a huge opportunity to bring the principles of cloud computing to the desktop. It gets better, and it’s fast and secure. That’s the vision. We think we can do that because we have a unique operating system. It’s just a browser that’s completely stateless. As a result of that, you can boot up in 5 to 10 seconds. And no matter where you go, you log in, you have your entire desktop. If the system breaks, that’s not a problem, you just jump on to another system. If you lose it, it’s not a problem because its stateless.

There are people who would say its crazy to try and dislodge Windows as the operating system of choice for businesses, and yet you think you can do it. What kind of results have you seen so far?

If you just have a browser and take out everything else, life gets a lot simpler. And this is why I think that the desktop OS is ready for a radical change much like the enterprise applications were a few years ago. One thing we’ve found is that very significant portions of the population are using only a browser right now. Those trends show that this area is ripe for a change. If you look down the line in three years, the majority of those business users will use only a browser. We created this pilot device called the Cr48, which is a notebook with Chrome OS installed on it. We received 50,000 applications from businesses interested in trying it, and we now have thousands deployed in the field. We have companies like Intercontinental Hotel Group, Virgin American and Groupon using them for different things. We’ve even heard from the US Army Intelligence Office. We heard from a lot of companies we didn’t expect interest from.

I think you’ll see some early adopters, groups of users within companies, this year. Some companies’ pilot programs want to do large roll-outs to call centers and to customer service reps and some want to roll them out to mobile sales people. Many will find that it makes sense to them because it brings the cost down. No one wants to pay to have to fix a system that’s broken because two applications are in conflict with each other. No one wants to pay to go patch an operating system. That kind of thing is going to become a lot easier with Chrome OS.

Today, however, was about the Atom chip, the other chip on which Intel has pinned such hopes yet seen little payoff as yet. The company announced that the latest version of the Atom, known till now under the codename Oak Trail, is available beginning today.

The new chip is about 60 percent smaller, meaning it consumes less power than its predecessor to get the same level of computing work accomplished. Intel says it will be capable of delivering “all day” battery life in tablets and allow for a fanless design in small notebook PCs, meaning those devices will be both cooler and quieter. Intel has also added a feature called Deeper Sleep that conserves power during periods of inactivity.

And as is often the case when Intel debuts a new chip, it also points toward the near horizon. In this case, it’s Cedar Trail, yet another version of the Atom, this one built with a bleeding-edge 32-nanometer manufacturing process, which means all the elements on the chip will be even smaller yet. Intel’s current line of PC processors, the Sandy Bridge generation, is built on the same manufacturing technology. Cedar Trail will not only be smaller, but also will sport such things as a media engine for video playback at full HD resolution of 1080p.

Tablets and smartphones to this point have been another sore spot for Intel, where chips built on the core designs of U.K.-based ARM Holdings tend to hold sway. Intel’s chips have so far suffered from a nagging need to sip precious battery power far less greedily as compared to designs of ARM-based chips from the likes of Broadcom, Qualcomm, Samsung and others.

The new chip will run on tablets running Google’s Chrome and Android operating systems; MeeGo, the smartphone platform that Intel has been working on with Nokia (though its future is in question since Nokia’s decision to embrace Windows); and Microsoft’s Windows.

Meanwhile, Intel still has a lock on the market for traditional PC and server chips, though as we all know, tablets–one in particular–have been causing all kinds of troubles for the players in that end of the market.

Sources at Acer told DigiTimes that Apple’s iPad undercut the company badly in the netbook market. And it quickly became clear that simply boosting shipments of notebooks to win market share was no longer a viable strategy. “We were almost too successful in the past…but more recently the iPad and other new form factors have had a very big impact on the PC market,” Acer Chairman J.T. Wang told the Financial Times. “We have to change our business strategy.”

And leadership. Because Acer needs to replicate in tablets its success in notebooks. To do that, it must approach the market as Apple or HTC might, searching out profits on high margin devices. And according to Acer execs, Lanci was too busy fighting a pricing war with Dell and Hewlett-Packard to realize it. Said Acer CFO Tu Che-min, “There is good consensus among the board members that the tablet is the way to go.”

Time to chase profits over market share.

Acer had a tough time in the consumer market as the iPad cut into its consumer netbook sales, giving Dell, still strong in the healthy market for corporate PCs, the opportunity it needed to edge ahead of Acer by nearly two percentage points. ISuppli analyst Matthew Wilkins says it looks like a “firm lead.” Dell also edged out Acer for the number two spot for the entire year, iSuppli says. (Table courtesy iSuppli.)

Overall, iSuppli says the fourth quarter set a record for overall PC shipments with more than 93 million units, up nearly 5 percent from the same period in 2009. For the year, global PC shipments amounted to 345.4 million units, up 14.2 percent from 302.4 million in 2009.

Lately PC market analysts have been blaming Apple and its industry-changing iPad — the second iteration of which goes on sale tomorrow – for damaging the fortunes of PC makers. In this odd case it’s being seen as hurting one to the advantage of another. I have to wonder if Michael Dell feels at all thankful.

Gartner now says that PC shipments will grow by 10.5 percent, down from a previous forecast of a much more robust 16 percent. It doesn’t get much better in 2012. Gartner now expects growth of 13.6 percent down from 14.8 percent previously.

There are two forces at work. First, demand for PCs is generally weaker in China, but there’s also an overall loss of interest among consumers for mobile PCs, Gartner analyst Ranjit Atwal explained in a statement. Sales of Mobile PCs have been growing like crazy for the last several years, and particularly as Wi-Fi has penetrated the home and office. But now that smart phones and tablets–especially the iPad–have brought the Internet everywhere a notebook can go plus lots of other places too, notebooks just aren’t as cool as they once were.

And there’s more bad news for notebook vendors: Not only are sales of new notebooks slowing, but consumers are expected to keep their existing notebooks for a longer period of time. In mature markets like the U.S. and Europe, notebook sales will be growing at an average of less than 10 percent over the next five years, down from 40 percent during the previous five years.

This isn’t the first time that Gartner has put out data showing how tablets are encroaching on the notebook market. In January, Gartner and its main rival IDC came out with fourth quarter sales data that was weaker than expected, in part because of iPad sales.

Tablets were supposed to be–or so the conventional wisdom went–entertainment and media consumption devices, not something you could do any serious work on. That’s clearly turning out not to be the case.

And while for the most part sales of notebooks into large corporations is secure–Gartner says it still expects double-digit growth in sales of professional notebooks–that segment is not without its own set of iPad-centric worries. As Apple said on its latest earnings conference call, 80 percent of Fortune 100 companies are putting iPads to work in their businesses, and Apple is actively pushing the iPad as a device that’s as useful at the office as at home.

An astonishing spike. And it’s even more astonishing when you break it down by sector. In the global home or consumer market, the Mac posted shipment growth of 17.1 percent, while the broader market posted a decline of .6 percent. In the business market, Mac shipments grew 65.4 percent compared to the market growth rate of 9.7 percent. And in government, they grew 549.5 percent compared to the broader market’s 8.4 percent. Of course, government sales represent only 1 percent of total Mac sales, so that spike appears more dramatic than it really is, but still…

So what’s the engine for all this growth? Needham analyst Charlie Wolf thinks it’s a halo effect from Apple’s iOS device trinity–the iPod, the iPhone and the iPad–particularly, the latter two, which are gaining lots of traction in both the home and business markets (Oddly, Apple suffered a decline in the education segment, where it has traditionally been pretty strong).

“The surge in Mac sales in the business market coincided with the introduction of the iPad in the second quarter of 2010,” says Wolf. “It would be foolish to assign a cause and effect connection between the two events. However, in less than a year, the iPad has been deployed or piloted in 80 of the Fortune 100 companies, and it’s reasonable to assume the device has invaded smaller businesses at a similar pace. It’s likely, then, that the halo effect emanating from the iPad will be far stronger than the iPhone halo effect in the business market if only because the iPad is a kissing cousin of Apple’s family of notebook computers.”

Hardly a surprise given recent trends. Recall that retail notebooks in the United States have been charting decelerating growth for months now, driven largely by the iPad. Now with RIM’s PlayBook, Hewlett-Packard’s “PalmPad” and dozens of other tablets headed to market it’s only going to slow further.

PREVIOUSLY:

• Forecast: 19 Million Notebooks Lost to Tablet Cannibalization (Meaning iPad) in 2011
• IPad: Tonight We Feast on Laptop Flesh!
• Apple: The iPad Isn’t Cannibalizing the Mac, But We Sure Hope It’s Cannibalizing the PC
• IPad No Cannibal, Says Analyst
• Apple’s iPad: Angel or Cannibal?

The first signs of trouble came in the form of a cancellation of a media briefing scheduled by Hewlett-Packard for Feb. 15 in New York concerning a new batch of HP business notebooks. I’m now told the event will be rescheduled. (Update: See HP’s statement below.)

Meanwhile, Dell told Bloomberg News that four of its PCs are affected, all of them in the higher end of the lineup: XPS and Alienware, both gaming-oriented machines, and the Vostro line, aimed at businesses.

Update: Dell spokeswoman Elizabeth Shine just sent a statement.

“Dell and Intel are in communication regarding the design issue in the recently released Intel 6 Series support chip set, code-name Cougar Point. This affects four currently-available Dell products, the XPS 8300, the Vostro 460, the Alienware M17x R.3 and the Alienware Aurora R.3 as well as several other planned products including XPS 17 with 3D.

For customers impacted by this issue, Dell offers a couple of solutions. Customers experiencing issues will be supported under the warranty and service terms. Once we have new chip sets from Intel in early April, we will provide a motherboard replacement that corrects the design issue at no cost to our customers. Replacements will be provided at the customers’ location and convenience via authorized Dell service providers. Affected customers may also take advantage of the applicable return policy, which may vary by region.

We will provide further details as they become available.”

What’s not clear yet is whether any shipments at Apple will be affected. As usual, Apple’s product plans are shrouded in the mists of corporate secrecy. The company declined to give a statement, citing a policy of not commenting on future products. But if history is any judge, it’s about time for Apple to update the MacBook Pro. The last update, as the MacRumors Buyer’s Guide helpfully reminds us, was on April 13, 2010, or nearly 300 days ago. The average number of days between updates is closer to 200. Though even if Apple is running later than it would like to on introducing certain Macs, it would probably never admit it.

Intel, for its part, is now starting to help people who recently bought PCs to figure out if they’re affected by the problem. A page on its support Web site walks users through the process of determining whether they have the chipset in question and, if they do, directs them to contact the “place of purchase” or an Intel field sales rep.

Update 2:I just received a statement from HP spokeswoman Marlene Somsak on the issue:

“HP is working with Intel and our distribution partners to address this industrywide issue. The issue relates to only a small fraction of HP PCs sold or ordered since on or about January 9 2011 when the Intel technology became available commercially. HP and Intel are working together to minimize any inconvenience to customers.

For HP, the issue is primarily limited to certain consumer notebooks and certain consumer desktops. One commercial desktop PC model marketed to small business customers in the Europe-Middle East-Africa region is affected. No other commercial desktop products currently shipping are affected. No HP commercial notebooks, ProLiant servers or workstations are affected.

To deliver a high-quality experience to our customers, on January 31 2011 HP stopped manufacturing products with the affected Intel technology and initiated a shipment hold on products in HP and channel inventory.

Customers can return their affected product and choose a comparable product or receive a refund. We will continue to work closely with Intel and our retail partners to address the needs of our customers.”

Intel didn’t say much about what he’ll actually do. Intel’s statement on the partnership says he will “collaborate with Intel on many creative and technology endeavors across the ‘compute continuum,’ which reaches across traditional notebooks and into smart phones and tablets.” It’s on those last two where Intel has tended to struggle with market penetration, mainly because most device manufacturers favor chips built around the ARM architecture.

The company did reveal that he’s already working on music for Intel. He did say in an Intel press release that “nearly everything I do involves processors and computers, and when I see an Intel chip I think of all the creative minds involved that help to amplify my own creativity.”

Meanwhile, it’s not Intel’s only promotional endeavor in the world of pop music. The company teamed up with the Korean girl-group sensation Girls’ Generation, which our friends at The Wall Street Journal profiled last week. The video below is supposedly inspired by Intel’s “Visibly Smart” 2nd Generation Core processors, and, if nothing else, you can hear the word “core” throughout the lyrics. However it’s worth watching if only for the last few seconds, when the group does its take on the well-known Intel chime from its TV commercials.

DRAM is the ultimate commodity chip market, and its boom-or-bust cycles are legendary. When demand picks up, manufacturers like Samsung, Hynix and Micron always rush to add manufacturing capacity–prices pick up; chips become scarce.

Everything seemed to be going well for the chip companies until the third quarter of 2010. After five straight quarters where the average price for a DRAM chip increased, it suddenly turned south as demand for notebook PCs slacked. That’s in line with what Gartner and IDC reported yesterday about the PC market.

There’s good news for consumers, however. All that stacked-up inventory has to go somewhere. If you’re planning to buy a notebook this year, the base models will now start shipping with four gigabytes of memory instead of two. And for those who bought a machine with only two in the last year or so, upgrades will be more affordable.

The one bright spot for the memory companies? You got it: Smartphones and tablets. Memory content in phones is expected to increase by nearly two-thirds. And the 57 million tablets that iSuppli expects will ship this year will also need some DRAM. More details here from iSuppli.

One interesting revelation is that both Hewlett-Packard and Acer, the top two vendors by volume in the Gartner survey, saw their shipments decline year-on-year in a period where the rest of the industry was seeing growth, albeit slower than had been previously expected.

Hewlett-Packard maintained its market lead, with a share of about 18 percent worldwide, and 29 percent in the U.S. Acer came in second. Both saw their unit volumes decline. For HP, that translated to a decline of more than 200,000 units in fourth-quarter PC sales, or a little more than 1 percent. For Acer, which had hitched its wagon to the netbook craze a few years ago, it translated to a decline of nearly 2 percent, or more than 222,000 units. Dell, Lenovo and Toshiba all saw their shipments grow, with Lenovo leading the pack, growing a healthy 21 percent.

Gartner says that worldwide shipments totaled 93.5 million units in the fourth quarter, which amounted to growth of only 3 percent over the same period a year earlier, falling short of the 5 percent growth it had previously forecast. Gartner Analyst Mikako Kitagawa blames the iPad and other media tablets for the slackening growth. She says the industry’s one bright spot, oddly enough, is in enterprise, where companies are upgrading the machines they issue their employees. For the full year, the worldwide PC industry recovered from the recession, growing nearly 14 percent to 308 million units.

Apple remained in fifth place in the U.S. with a share of market just shy of 10 percent, and less than a percentage point behind Toshiba. Notably, this figure doesn’t include iPads, which hit a combined 7.5 million units in Apple’s third and fourth fiscal quarters, both of which ended before the holiday season. (Apple will reports earnings for its first fiscal quarter, which includes the holiday season, next week.)

IDC’s survey found the same trend, but it differed from the Gartner survey on a few key points. IDC put Dell in second place, behind HP and ahead of Acer in the worldwide market share race. I’ll attribute this to differences in methodology, since Gartner and IDC differ a little in how they count.

Another interesting note is that IDC paints a more negative picture of Acer, pegging its decline in fourth-quarter sales at 15 percent from 2009 to 2010. I asked IDC analyst Loren Loverde about the difference in IDC’s results versus Gartner’s, and he said part of it comes from differences in methodology, but also from the fact that Acer is closely held and so is a tricky company to track, and the data it does disclose isn’t as detailed as the other companies’.

But Loverde also says decline, whether 2 percent or 15 percent, reflects a stark business reality for Acer. The road to PC growth through mini-notebooks and geographic expansion is closed. It was a good strategy while it lasted.

The event is set to kick off shortly and Mobilized will have live coverage here.

1:05 pm: Well, despite timely warnings to get in our seats beginning at 12:45, it’s now five minutes after and the techno is still pumping.

1:11 pm: Okay. Getting started. Loud music gets louder. Cue video.

Tony Melone and Marni Walden take the stage and CEO Daniel Mead (at least I think it is Mead) is doing an intro.

1:15 pm: Another video now playing with partners. Since HTC CEO Peter Chou is in there, I think it is probably safe to say their oft-rumored LTE smartphone will make an appearance.

1:16 pm: Samsung and Ericsson execs also in the video.

1:17 pm: Verizon exec now touting the advantages of its 4G network including its spectrum, which it says will give it the best in-building coverage.

Also talking about how it is sharing its spectrum with rural service providers.

1:18 pm: Mead: “We’re very pleased to be part of bringing broadband to rural America.”

1:21 pm: Mead hands off to CTO Tony Melone to talk 4G and LTE.

Melone says that the company knows there is a lot of skepticism of the company’s move to go straight to LTE but that the bet is paying off with more networks and running faster than planned.

“The customer feedback we are getting is everything we had hoped for and then some,” Melone says.

Melone talks about 4G LTE plans.

Thirty-six months from now we will have the nation covered with LTE, Melone says. Two-thirds of the population will be covered in 2012. This year alone, he says, Verizon will add 140 new markets, including places like Little Rock, Detroit and Sioux Falls.

1:26 pm: On to devices.

Ten devices coming by mid-year being shown on stage: Four smartphones, two tablets, two notebooks and two mobile hotspots.

1:33 pm: LG CEO shows off the LG Revolution, what appears to be a slimmish smartphone.

Next up, Skype’s CEO talks about a new partnership that will allow for Skype to be always on and integrated into the address book of all of Verizon’s LTE smartphones,

1:34 pm: He’s followed by HTC CEO Peter Chou, who introduces the HTC Thunderbolt.

Chou says he’s been personally testing and using the Thunderbolt, which features the new Skype video chatting along with HTC’s Sense user interface.

“Let me tell you, it’s blazing fast,” Chou says.

Other features include a built-in 4G hotspot and a 4.3-inch Super LCD screen.

1:37 pm: He thanks Qualcomm and Google engineers that worked together to create the device, so guessing this one isn’t using Nvidia’s Tegra chip.

Next up is Electronic Arts VP Travis Boatman. EA’s mobile games lineup ranges from Monopoly and Tetris to Need for Speed and the FIFA 11 soccer game.

The new mobile version of Rock Band for Verizon’s LTE network lets people form a band and remotely jam over the network.

Samsung executive goes onstage to show off three devices for the LTE network, One is a mobile hotspot, one is a smartphone and the other is a 4G version of the Galaxy Tab.

Phone packs 4.3-inch Super Amoled Plus display, which is said to boost colors and offer improved display. It’s got an 8-megapixel rear-facing camera with HD video and a 1.3-megapixel front-facing camera for video chat.

The tablet has a 1.2GHz processor developed by Samsung, while the hotspots provide connections to up to five users at a time.

Most impressive is the fact that the Samsung executive pulled all three devices out of various pockets.

Marni Walden shows off the remaining devices–a Novatel MiFi hotpot that works with both 3G and 4G networks.

There is also a Compaq Netbook, an HP notebook, as well as the previously announced Motorola Xoom and Motorola Droid Bionic.

1:47 pm: On to Q&A (hoping laptop No. 2 holds out through the end of question time.)

First question has to do with LTE speeds, which often exceed the 5- to 12-megabit speeds promised. Mead says that the company’s goal is to meet the promised speed range once the network is fully loaded, something that is not the case today.

Next question is on battery life. Melone says the company believes it will be able to meet customer expectations in that regard.

The company says it won’t announce pricing or rate plans for the 4G products, beyond noting its current prices for 4G laptop cards and service.

As for simultaneous voice and data, Walden says the company intends that at least some of its 4G launch devices will support talking and accessing data at the same time.

“It could be on some devices and not all,” Walden says.

Walden also confirms all the phones it showed Thursday are running Android.

1:55 pm: Asked about net neutrality, Mead says that what the industry needs is “unfettered development.”

“We think the free market system works very well, and we don’t need a lot of heavy intervention.”

If such a deal happens, it would get Qualcomm, whose business is tied most closely to the wireless handset business, into the business of supplying chips for Wi-Fi and other wireless networking technologies like GPS, Bluetooth and Ethernet. Atheros’s Align product is a set of chips for 802.11n Wi-Fi networking. According to its 10K report, 43 percent of its fiscal 2009 sales were from its networking segment, which went into wireless routers and Ethernet switches, while 37 percent of sales went into notebook PCs, and 20 percent into consumer devices like game systems, navigation devices and Blu-ray players. These are all markets that Qualcomm has had trouble penetrating.

Atheros says its biggest customers are Hon Hai Precision Industry, the Chinese company that owns the manufacturing behemoth Foxconn, and Nintendo, though that only paints a partial picture.

Update: I asked market research firm iSuppli to look through its database of product teardowns to see where Atheros’s chips have shown up in the past, and the list is extensive. Atheros networking chips show up in numerous notebooks, including Hewlett-Packard’s, Toshiba’s, Acer’s, Asus’s, and Apple’s iMac. They’ve also been seen in several handheld products, including Amazon’s third-generation Kindle, Samsung’s Galaxy S, Sony Ericsson’s Xperia X10, the Nintendo DSi, and Microsoft’s Zune HD. Networking customers include Netgear, 2Wire and Huawei. At least now it’s pretty clear why Qualcomm might be interested.

Sales in 2009 were $522 million, and the average forecast by analysts calls for it to report sales of $922 million for the year ended Dec. 31. Atheros shares naturally shot up by a whopping 19 percent on word of a potential deal. At $44 a share, the stock is now trading at nearly double its 52-week low.

A deal for Atheros would also get Qualcomm’s year off to a potentially positive start following the demise of its FloTV business, though there are also several potential developments in the offing for Qualcomm, including augmented reality and a possible design win in Apple’s iPhone 5. Qualcomm investors appeared to like the notion of a combination with Atheros, too, and sent its shares up by 1.5 percent.

Meanwhile, here’s Walt Mossberg’s interview with Qualcomm CEO Paul Jacobs at last year’s D8.