U.S. technology research firm
) recently announced that worldwide PC unit shipments declined 0.1%
year over year to 87.5 million units in the second quarter of
fiscal 2012. Shipments were also below the prior quarter level.
Worldwide shipments during the first quarter were 89 million units.
The past several quarters have seen significant uncertainty in the
PC market. The popularity of next-generation ultra-portable gadgets
(mainly tablets and smartphones) has taken the market by storm,
diverting consumer spending from traditional desktops and
notebooks. Additionally, the much-hyped ultrabooks -- the next-gen
laptop -- have failed to woo end-users, as expected.
Gartner estimates indicate that
) saw unit shipments slipping 12.1%, the worst amongst the PC
vendors worldwide. H-P was followed by
) with an 11.5% decline. However, impressive performances by
Lenovo, Acer Group and ASUS provided some support to the metrics.
In terms of market share, H-P maintained its world leadership with
14.9%, closely followed by Lenovo (14.7%). Dell lost its third
position to Acer Group (11.0%), ending up fourth with a market
share of 10.7%.
In the domestic market, H-P led with a 25.0% share, followed by
Dell with 21.7% and
) with 12.0%. But Apple saw the strongest year-over-year growth at
4.3%, handily beating H-P (-12.7%) and Dell (-9.5%).
Considering the above scenario, we believe that H-P has plenty of
reason to worry. While Asian vendors are stiffening competition in
the world market, Apple is making life difficult at home. During
the first quarter, Apple's share in the market was just 10.6%
compared to H-P's 29.0%.
Research firm IDC also shares the same opinion as Gartner.
According to IDC, the decrease in unit shipments came below its
conservative projection of 2.1% growth.
The Ripple Effect
The weakness in the PC market has also affected other companies.
Some other OEMs (original equipment manufactures) and allied
industries which have their fortunes tied to the industry have also
been under pressure.
remains cautious about the global environment for both consumer and
commercial spending for its PC segment. Management also expects the
pricing environment to remain competitive. Hence, it has decided
not to provide quantitative revenue or segment-level outlooks.
H-P initiated a number of strategies to deal with the poorly
performing PC segment. New product launches, the decision to spin
off the segment (which was scrapped), and the merger of its PC and
printer divisions are worth-mentioning.
But the strategies did not work out properly, probably due to the
persistent weakness in IT spending. In order to deal with the
situation, H-P announced a major restructuring program focusing on
reducing the cost structure and realigning the work force to create
investment capacity, support growth initiatives and innovation, and
enable more effective operations globally.
H-P intends to reinvest the majority of savings from head count
and non-head count related actions in its business to foster
innovation, particularly in cloud, big data analytics, information
management and security.
expects a 2-4% sequential revenue growth, much of which is expected
to come from servers and storage products. At its analyst day held
in June, Dell announced a $2.0 billion cost cutting program over
the next three years.
The idea behind the cost-cut is mainly to shift focus from the
traditional computing business to a high-margin enterprise-class
software and services market. Dell has also acquired a number of
cloud and software vendors over time to solidify its position in
the enterprise-solutions vertical.
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The lackluster PC market is forcing the two key players to shift
their focus from the traditional business. These tech giants are
following the trend set up by
), which offloaded its PC unit to China's Lenovo Group Ltd. in
Yesterday, Asian PC manufacturer,
reduced its growth forecast for fiscal 2012. But the company is
somewhat optimistic about the release of
) Windows 8 operating system. The offering could boost PC sales in
the coming quarters.
Analysts are of opinion that chip-maker
) may face challenges to meet its guidance for the second and third
quarters of fiscal 2012, owing to the sluggish PC market. Intel did
not slash its guidance but the shares dropped 3.2% post Gartner's
Last week, Intel's archrival
Advanced Micro Devices Inc.
) lowered its second quarter sales expectations, citing weak demand
in China, sovereign debt issues in Europe, as well as a sluggish
U.S. personal computer market.
Microsoft has also announced cost cuts by way of headcount
reduction. The decision was largely based on Gartner's announcement
of slowing PC sales.
Apart from the companies mentioned above, there are some others
that could be affected by the soft PC market. Hard disk drive
Seagate Technology plc
Western Digital Corp.
) and graphic chip-maker
) are worth mentioning.
Though the current scenario looks terrible, we believe that any
improvement in macroeconomic conditions and Euro issues could boost
tech spending going forward. Also, the release of Windows 8 could
have a positive impact on PC sales.
Recently, Gartner predicted that global spending for information
technology products and services will increase 3.0% year over year
to $3.6 trillion in 2012. The projection surpasses the 2.5% growth
expectations provided earlier this year.
To conclude, we think that aggressive pricing by Asus and Lenovo
and Microsoft's upcoming tablet, Surface, could put H-P and Dell
under even greater pressure. The bets appear to be on their
ultrabook offerings, where initial reaction appears softer than
Currently, H-P, AMD, Apple and Microsoft hold a Zacks Rank of #3,
implying a short-term Hold recommendation. Intel has a Zacks Rank
of #4, implying a short-term Sell recommendation. Dell has a Zacks
Rank of #5, implying a short-term Strong Sell recommendation.