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in newer product categories such as ultramobile PCs, MP3 players (e.g., the iPod), and smart phones.

Worldwide revenues for the core PC industry totaled $235 billion in 2005: $191 billion in desktop and portable PCs, $28 billion in PC servers, and $16 billion in smart handheld devices (IDC, 2006a). In addition, PC software accounts for about half of the packaged software industry, whose 2006 sales were $225 billion, and PC use also drives sales of information technology (IT) services and of other hardware such as storage, peripherals, and networking equipment (IDC, 2006c).

The PC has undergone considerable innovation and change since it was first introduced. The traditional PC is no longer expected to be the sole locus of innovation in the future, but simply one of many devices “orbiting the user” (Economist, 2006). Communications devices (phones, PDAs) have acquired computing capabilities and people now send e-mail with a BlackBerry or download music on a mobile phone. Digital photos can be transferred from a camera to a PC and uploaded to a website, transferred directly to a printer, or shot and e-mailed with a mobile phone. And although the traditional desktop and laptop PC is becoming less central to all computing activities, over 225 million PCs were sold in 2006 and the PC is often the first place to find innovations that may migrate later to other devices.

As important as product innovation has been, equally important is the steady price declines in recent years, which have brought PCs within the reach of more of the world’s population. Emerging markets such as China and India are growing much faster than the more mature developed markets, and PC makers have begun to focus on innovation that addresses the needs of those markets at low prices. Globalization of production has been credited for making computer hardware 10 to 30 percent cheaper than it would be otherwise (Mann, 2003). The availability of ever cheaper, smaller, and more powerful hardware has continued to expand the market and has stimulated ongoing innovation in hardware, software, and services.

Although globalization has been a major factor in the growth and innovation of the PC industry, it raises issues for U.S. companies, government and other institutions, and workers. U.S. PC makers are struggling to eke out a profit in an environment of falling prices and intense international competition. Government policy issues include tax incentives, antitrust, immigration, and market access. Universities must ensure that they are training people with the skills that industry needs, and workers must invest their own time and money to acquire those skills even as more highly skilled knowledge work is moved offshore.

The impacts of globalization have been debated extensively. An optimistic view is that U.S. firms are outsourcing and offshoring lower-end manufacturing and routine engineering work, freeing resources to focus on more dynamic innovation that will sustain profitability and create new jobs in the United States.

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