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The PC industry is still not out of the woods, according to the recently released worldwide PC shipments data for third-quarter 2016 by two independent research firms — Gartner Inc. (IT - Free Report) and International Data Corporation (“IDC”). The PC market has been witnessing shipment declines over the past few years and the third quarter was no exception.

The Data

The preliminary data released by Gartner showed that PC shipments in the quarter were down 5.7% year over year to 68.9 million units. The decline marked the eighth straight quarter of a year-over-year drop, which according to the research firm, is “the longest duration of decline in the history of the PC industry.”

Going into specifics, Gartner stated that among the top six vendors, Lenovo, Apple Inc. (AAPL - Free Report) and Acer all witnessed declines in PC sales, while the likes of HP Inc. (HPQ - Free Report) , Dell and Asus recorded growth. However, companies under the Others category witnessed a 16.2% drop in PC shipments.

Nevertheless, Lenovo has managed to retain its leading position with a 20.9% market share despite the 2.4% year-over-year fall in unit shipments in the sixth consecutive quarter of a decline. The next five spots were held by HP Inc., Dell, Asus, Apple and Acer in that order, with respective market shares of 20.4%, 14.7%, 7.8%, 7.2% and 6.7%.

Notably, for HP Inc., this was the second consecutive quarter of year-over-year shipment growth following five back-to-back quarters of underperformance. The company witnessed a 2.3% increase in PC shipments. We believe that the spin-off from Hewlett-Packard Company and restructuring initiatives like a focus on product innovations, pricing, marketing and sales activities, divestment of non-core assets, and job cuts to lower costs, are paying off at last.

IDC, on the other hand, stated that PC shipments fell 3.9% year over year to about 68 million units in the third quarter. Note that the actual figures are roughly 3.2% narrower than the research firm’s prior prediction of a 7.1% decline.

As usual, there were slight differences between the data provided by the two research firms. This is mainly due to different techniques used for tracking PC sales as well as the inclusion and/or exclusion of certain products. For example, unlike Gartner, IDC includes Chromebooks which runs on Alphabet Inc.’s (GOOGL - Free Report) Chrome operating system. Similarly, Gartner takes into account Microsoft Corporation (MSFT - Free Report) tablets and "detachables" such as the iPad Pro and the Asus Transformer, while IDC does not.

However, IDC agreed with Gartner on the tumbling PC shipments at Apple, Lenovo and other smaller companies, which were in stark contrast to the rising sales of HP Inc., Dell and Asus.

One notable trend underlined by the IDC report was the positive growth in Japan. Meanwhile, the North American region continued the growth story for the second consecutive quarter. On the contrary, every other region registered a decline in unit sales on a year-over-year basis.


Talking about the challenges faced by vendors during the quarter, the firms have stopped blaming Brexit and the delay in fully deploying Windows 10 operating systems by enterprises, and are instead holding sluggish demand responsible for the PC shipment decline.

Gartner, in particular, cited the weak back-to-school demand and ongoing low demand in the consumer market, especially in emerging markets, as the main reason for decline in PC shipments. According to Mikako Kitagawa, principal analyst at Gartner, the PC industry is grappling with two major issues – “the extension of the lifetime of the PC caused by the excess of consumer devices, and weak PC consumer demand in emerging markets".

He further added, “According to our 2016 personal technology survey, the majority of consumers own, and use, at least three different types of devices in mature markets. Among these devices, the PC is not a high priority device for the majority of consumers, so they do not feel the need to upgrade their PCs as often as they used to. Some may never decide to upgrade to a PC again. In emerging markets, PC penetration is low, but consumers are not keen to own PCs. Consumers in emerging markets primarily use smartphones or phablets for their computing needs, and they don't find the need to use a PC as much as consumers in mature markets.”

Bottom Line

Though both the research firms reported a year-over-year decline in global PC shipments, we believe that the downtrend has rather moderated in the third quarter, compared with the previous quarters. For the first and second quarters of 2016, IDC had reported an 11.5% and 4.5% drop in PC shipments, while Gartner’s figures stood at 9.6% and 5.2%, respectively.

Computer - Peripheral Equipment Industry Price Index

Computer - Peripheral Equipment Industry Price Index

Furthermore, in the emerging markets, consumers are increasingly opting for relatively inexpensive mobile computing devices, such as smartphones. The increase in functionality and larger screen sizes (5 inches and above) are boosting the demand for such devices. Additionally, the ongoing transformation in the way people communicate has led to the proliferation of mobile devices.

Therefore, we believe that the strong dollar and delay in transition to Windows 10 are only temporary factors. Instead, PC manufacturers have a bigger problem to deal with — cost of device — to ensure long-term growth.

From the long-term perspective, PCs have to compete with mobile computing devices as returning to growth is still a distant possibility. The decline will hurt the business prospects of companies like HP Inc., Intel Corporation (INTC - Free Report) , Seagate Technologies (STX - Free Report) and Western Digital (WDC - Free Report) , which continue to depend substantially on PC sales.

Currently, Intel sports a Zacks Rank #1 (Strong Buy) while Seagate and Alphabet both carry a Zacks Rank #2 (Buy). HP Inc., Microsoft, Apple and Western Digital each has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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