PC Market Plight Continues in Q3 Say Gartner, IDC
The PC industry does not seem to be out of the woods yet as the recently released worldwide PC shipments data for third-quarter 2015 by two independent research firms — Gartner Inc. IT and International Data Corporation (“IDC”) — indicate. The PC market has been witnessing shipment declines over the past few years and the third quarter was no exception.
According to the preliminary data released by Gartner, PC shipments in the third quarter fell 7.7% year over year to 73.7 million units. The research firm stated that PC manufacturers including Lenovo, Hewlett-Packard HPQ, Acer and Asus registered year-over-year decline in PC sales, while Dell and Apple Inc. AAPL witnessed growth.
Per the research firm, Lenovo retained its leading position with 20.3% market share followed by Hewlett-Packard, Dell, Apple, Acer and Asus with 18.5%, 13.8%, 7.6%, 7.4% and 7.1%, respectively.
On the other hand, IDC reported that PC shipments have fallen 10.8% from the year-ago period to approximately 71 million units, worse than its earlier projection of a 9.2% decline.
According to IDC, Lenovo, Hewlett-Packard and Dell held the top three positions with respective market shares of 21%, 19.6% and 14.3%. Apple was fourth with a 7.5% share followed by Acer’s 7%.
The difference in results is mainly due to different techniques used for tracking PC sales as well as the inclusion and/or exclusion of certain products. For example, IDC includes Chromebooks which run on Alphabet Inc.’s GOOGL Chrome operating systems, while Gartner does not. Similarly, Gartner takes into account certain Microsoft Corp. MSFT devices which, according to IDC, are tablets.
Nevertheless, both the firms have primarily blamed the strengthening dollar for the decline. According to Gartner, the global PC market witnessed about 10% price rise due to the sharp appreciation in the U.S. dollar against other currencies which resulted in a double-digit decline in PC sales across Europe, Middle East and Africa (EMEA), Japan and Latin America regions.
Furthermore, both the firms agreed that the launch of Microsoft’s Windows 10 in the quarter had a negligible impact on PC shipments. This was because customers upgraded their existing PCs to Windows 10 rather than buying new ones.
However, both the firms expect slight recovery in PC shipment in the next quarter and year. As per Mikako Kitagawa, principal analyst at Gartner, “Soft recovery is expected to start in 4Q15, as Windows 10 product refreshes start to appear. In the meantime, PC manufacturers should adjust configurations for 2016 without the impact of price hikes seen in 2015, which will lead into more stable market conditions in the upcoming year."
Moreover, Gartner, in the Sep 2015 Worldwide Device Shipment report, stated that it hopes that the scenario will change in 2016. According to Ranjit Atwal, research director at Gartner, “In 2016, we expect currency impacts to negate and while Windows 10 products on the Intel Skylake platform will increase in volumes throughout the year, Windows 10 adoption among businesses will ramp up sharply in 2017, where we expect the PC market to return to a four percent growth."
Furthermore, Gartner’s 2015 personal technology survey hints at some recovery in the PC market over the next 12 months. Per the survey, “50 percent of consumers expressed intention to purchase a PC in the next 12 months, compared with 21 percent for tablet purchase intention.”
Conclusion
We consider that strong dollar is not the only concern. PC manufacturers have to deal with another headwind — cost of device — to ensure long-term growth.
In the emerging markets, consumers are opting for relatively inexpensive mobile computing devices, such as smartphones. The increase in functionality and larger screen sizes (5 inches and above) are also boosting the demand for such devices. Additionally, the ongoing change in the way people communicate has led to the proliferation of mobile devices.
From a long-term perspective, PCs have to compete with mobile computing devices as returning to growth remains a distant possibility. The decline will hurt the business prospects of companies like Hewlett-Packard, Intel Corp. INTC Seagate Technologies STX and Western Digital WDC that still rely substantially on PC sales.
Currently, Alphabet and Seagate carry a Zacks Rank #2 (Buy), while Hewlett-Packard, Apple, Microsoft, Intel and Western Digital have a Zacks Rank #3 (Hold).
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