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Replacement Indecision to Hurt Global Device Shipment

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Gartner Inc. 's IT latest updated forecast for device shipments in 2015 shocked the manufacturers of all devices (PCs, ultramobiles, tablets and mobile phones) yet again. In the report released yesterday, the independent research firm revealed that worldwide device shipments will decline 1% year over year in 2015 to 2.4 billion units.

This compared unfavorably with Gartner's July prediction of an increase of 1.5%. It appears that declining unit sales is not something that only PC manufacturers are experiencing as the latest Gartner forecast indicates that all device manufacturers are facing the same plight.

The research firm cited the lack of device replacements as the main reason behind the dismal projections. According to Ranjit Atwal, research director at Gartner, "replacement activity across all types of devices has decreased. Users are extending the lifetime of their devices, or deciding not to replace devices at all".

The firm also blamed the strong dollar for the declining forecast. Furthermore, Gartner's latest report states that only the mobile phone market will witness shipment growth this year, while other devices, i.e. PCs, tablets and ultramobiles, will decline.

PC Shipment Forecast

Gartner predicts that in 2015, PC shipments (including premium ultramobiles) will decline 7.3% to 291 million units primarily due to the lack of device replacement and strong dollar. The premium ultramobiles category includes tablets and clamshells such as Apple Inc.'s AAPL iPad and iPad mini, Google Inc.'s GOOGL Nexus 7, and Samsung Galaxy Tab S 10.5.

This compared unfavorably with the July prediction of 4.5% decline as a result of persistent slowdown in purchase in Western Europe, Russia and Japan due to local currency devaluation against the U.S. dollar.

In its July report, Gartner stated that PC purchases in the first half of 2015 have been negatively impacted by the end of the migration from Windows XP. Furthermore, it had predicted that the demand for PCs may remain sluggish for the rest of the year as enterprises delay purchases after the introduction of Windows 10 to test their longer-term effectiveness before deploying.

However, Gartner is hopeful that the situation will change in 2016. According to Atwal, "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".

Tablet Shipment Forecast

Gartner predicts that ultramobile (tablets and clamshells) shipments will decrease 12% to 199 million units mainly because of lack of device replacement. This is much worse than the research firm's earlier forecast of 5.3% year-over-year decline. Tablet shipments, in particular, are projected to drop 13% year over year to 192 million units.

Per a user survey conducted across six countries by Gartner in June this year, "44% of current tablet users are planning to substitute their tablets with a different device. It is potentially even higher for laptop users, as 54% of them are intending to opt for an alternative device, including the highest percentage of undecided consumers".

In its July report, Roberta Cozza, research director at Gartner stated that "the tablet market is hit by fewer new buyers, extended life cycles and little innovation to encourage new purchases". The research firm also stated that users are now relying more on smartphones due to better functionality and larger screen sizes (5 inches and above).

However, Gartner predicts that ultramobile sales will revive again in 2016 and estimates 4.5% shipment increase. In 2017, shipments are projected to touch 218 million units, representing a year-over-year growth of 4.8%.

Mobile Phones Shipment Forecast

According to Gartner's latest predictions, the mobile phone is the only device market which will continue to grow. The company forecasts mobile phone shipments to increase 1.4% in 2015 and reach 1,905 million units mainly backed by an estimated 14% year-over-year jump in smartphone shipments.

This improvement in smartphone shipments will be driven by a solid 43% growth across the emerging Asia-Pacific region led by India and Indonesia. Greater China is expected to grow 3% this year.

Furthermore, mobile phone shipment is likely to touch the 2 billion unit mark by 2017, of which 89% will be contributed by smartphones.

However, it should be noted that the recent mobile phone shipment forecast for 2015 is much lower than Gartner's previous prediction of 3.3% growth. Furthermore, the anticipated growth rate is slower than the mobile phone market has witnessed over the past several years. Per the research firm, this is mainly due to the decline in the number of first-time buyers in China, indicating that the mobile phone market in the country might be approaching saturation.

In its July report, Annette Zimmermann, research director at Gartner said that "vendors in China will have to win replacement buyers and improve the appeal of their premium offerings to attract upgrades, if they want to maintain or increase their market share".

Conclusion

The device shipment decline will significantly affect manufacturers, part suppliers as well as the companies operating in allied industries.

Hewlett-Packard HPQ , Dell Inc. and Intel Corp. INTC are at the risk of being hit as their revenues mostly rely on PC sales. Also, companies in allied industries, such as IT security service provider Symantec Corp. SYMC , may bear the brunt as it caters to individual PC owners. Moreover, hard-disk drive manufacturers like Seagate STX and Western Digital WDC may witness volume decline due to lackluster PC sales.

Hewlett-Packard, Intel, Symantec and Western Digital have a Zacks Rank #3 (Hold), while Seagate has a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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