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PC Shipments Decline Narrower than Expected?

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PC shipments, though a continually disturbing factor so far, have showed signs of improvement of late.  As per the latest report provided by research firm IDC, 2014 PC shipments are expected to contract 6.0%, marginally lower than the research firm’s earlier forecast of a decline of 6.1% predicted in March this year. The improved estimate is largely due to stabilization in Western Europe and higher-than-expected sales in other mature markets.

The research firm also stated that demand for tablets continues to slow down this year, leading to the stabilization in the PC market. The system refreshes and enterprise system migrations beyond Microsoft's (MSFT - Free Report) XP operating system are the primarily factors driving desktop PC shipments. We believe that PC market growth will be moderate in the next few years, as enterprises are keen to buy computers rather than opting for tablets and mobile devices.

While the outlook for the PC market appears to be improving somewhat, overall PC shipments continue to be hurt by consumer preference for tablets and mobile devices in emerging markets. IDC had earlier stated that PC shipments declined 9.8% to 315.1 million units in 2013, largely as a result of an 11.3% decline in emerging markets to 182.1 million units.

The emerging markets were once considered to be the key growth driver but now pose challenges primarily due to macroeconomic weakness and political turmoil. According to BI Intelligence as quoted by CNET, one out of five persons in the world owns a smartphone and the numbers are expected to increase.

Recently, IDC projected that smartphone shipments worldwide will likely reach 1.2 billion units this year, up from 1 billion units in 2013. Furthermore, the upside will probably be sustained with the smartphone market reaching 1.8 billion units by 2018.

Three major operating systems likely to dominate the smartphone market include Google Inc.’s (GOOGL - Free Report) Android, Apple Inc.’s (AAPL - Free Report) iOS and Microsoft Corp.’s Windows Phone software.

What’s worse, IDC also anticipates PC shipments to decline from 315.1 million units in 2013 to 293.6 million units in 2014. In fact, the decline in the PC industry is expected to continue, coming down to 287.3 million in 2018.

Another major reason for the decline in PC sales is the cost of the devices. In emerging markets, consumers are opting for relatively inexpensive mobile computing devices such as tablets at the entry level.

We believe that the continuous decline in PC shipments raises a question about the growth of the PC industry. The decline will badly hurt the business prospects of companies like Hewlett-Packard Company (HPQ - Free Report) and Intel that rely substantially on the sale of PCs.  The ability to innovate and target new markets may be the only possible solution for these players.

Currently, Microsoft, Hewlett-Packard and Apple all carry a Zacks Rank #3 (Hold).

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