Back to top

Image: Bigstock

PC Shipments Show Signs of Revival in Q4 Per Gartner & IDC

Read MoreHide Full Article

Although worldwide PC shipments continued to decline for the ninth consecutive quarter, it is showing signs of stabilization as evident from the recently released data for fourth-quarter 2016 by two independent research firms — Gartner Inc. (IT - Free Report) and International Data Corporation (“IDC”). For full year 2016, the situation was similar as it marked the fifth consecutive year of annual fall, as per both the research firms.

The Data

The preliminary data released by Gartner showed that PC shipments in the quarter were down 3.7% year over year to 72.6 million units. The decline marked the ninth straight quarter of year-over-year fall, which is the longest duration of decline in the history of the PC industry. For the full year, Gartner stated that PC shipments fell 6.2% to 269.7 million units, continuing the annual trend of decline since 2012.

Gartner stated that among the top six vendors, Asus and Acer witnessed declines in PC sales, while the likes of Lenovo, HP Inc. (HPQ - Free Report) , Dell and Apple (AAPL - Free Report) recorded growth during the fourth quarter. However, companies under the Others category witnessed a 18.8% drop in PC shipments.

Lenovo has managed to retain its leading position with 21.7% market share. Most importantly, the company registered a year-over-year increase in PC sales for the first time after witnessing a decline for several quarters. Lenovo saw 1.6% growth in PC sales during the fourth quarter.

HP Inc. and Dell were the other gainers during the quarter and recorded the third consecutive quarter of year-over-year growth. Holding the second spot among worldwide PC vendors, HP Inc. registered 4.3% growth in PC shipments and raised its market share to 20.4% from 18.8% in the year-ago quarter. Dell, which occupied the third position, witnessed 5.4% growth and raised its market share to 14.8% from 13.5% in fourth-quarter 2015.

Apple made a comeback this quarter as it registered year-over-year growth after two consecutive quarters of decline. During the quarter, the company’s Mac sales increased 2.4%, which helped it to improve its market share to 7.5% from 7%. It holds the fifth spot among the top six PC vendors.

Asus and Acer held the fourth and sixth spots respectively, witnessing a year-over-year decline in PC shipments of 8.5% and 4.4%.

IDC, on the other hand, stated that PC shipments fell 1.5% year over year to about 70.2 million units in the fourth quarter. For the full year, PC shipments were down 5.7% to 260 million units.

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 run on Alphabet Inc.’s (GOOGL - Free Report) Chrome operating system. Gartner, on the other hand, takes into account Microsoft Corporation (MSFT - Free Report) tablets and "detachables" such as the iPad Pro and the Asus Transformer, which are not taken into account by IDC.

However, IDC agreed with Gartner on tumbling PC shipments at Asus and other smaller companies as well as increasing sales at Lenovo, HP Inc. and Dell. Nonetheless, it has a different view on Apple, as the firm saw a 0.9% decline in fourth quarter PC shipments as against Gartner’s projection of 2.4% growth.

Talking about the geographical performance, the two firms agreed that overall PC shipments across every region fell during the quarter. However, as per IDC, which shows Japan’s sales separately, the region witnessed year-over-year growth for the second consecutive quarter.

Concerns

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

Gartner, in particular, cited weak back-to-school demand and ongoing low demand in the consumer market, especially in emerging markets, as the main reason for the decline in PC shipments. Mikako Kitagawa, principal analyst at Gartner stated that, "Similar to low-key back to school sales in 3Q16, big sales events, such as Black Friday, Cyber Monday and holiday sales are no longer effective marketing opportunities for PCs since PC purchases are generally driven by a 'need,' rather than 'want,' motivation".

Furthermore, as per Gartner, Asia/Pacific region witnessed the highest fall in the quarter. This was mainly because of two reasons - demonetization of the Indian currency and success of China's 11.11 (Singles Day on Nov 11, 2016) online shopping event.

IDC agreed on Gartner’s views on the performance of the Asia/Pacific region, but also mentioned that although the demonetization crisis in India had affected PC sales initially in the country, it has recovered significantly toward the end of the quarter.

Extended lifecycle of the PC as a result of the availability of a wide range of alternative computing devices is another reason behind the overall decline.

Bottom Line

Though both the research firms reported a year-over-year decline in global PC shipments, we believe that the downtrend has become rather modest in the third quarter, compared with the previous quarters. For the first, second and third quarters of 2016, IDC had reported an 11.5%, 4.5% and 3.9% drop in PC shipments, while Gartner’s figures stood at 9.6%, 5.2% and 5.7%, respectively.

Furthermore, the two firms stated that PC vendors are now coming with innovative products such as 2-in-1s and thin and light notebooks as well as technology enhancements, which can make customers opt for a new PC.

Moreover, the two firms also agreed on the view that PC sales will witness stabilization in the quarters ahead as the demand for relatively inexpensive mobile computing devices, such as smartphones and tablets are slowing down.

However, Kitagawa opined that “This side of the market is much bigger than the PC enthusiast segment; thus, steep declines in the infrequent PC user market offset the fast growth of the PC enthusiast market."

She further added that “although the overall PC market will see stagnation, there are growth opportunities within the market, such as the engaged PC user market, the business market and gaming. However, these growth areas will not prevent the overall decline of the PC market, at least in the next year.”

Therefore, from the long-term perspective, PCs have to compete with mobile computing devices as returning to growth is still a distant possibility. In our opinion, PC manufacturers have a bigger problem to deal with — cost of device — to ensure long-term growth.

Nonetheless, for the time being, an improving trend in PC shipments will benefit 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, Seagate sports a Zacks Rank #1 (Strong Buy) while Microsoft and Western Digital carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

HP Inc., Intel and Alphabet each carry a Zacks Rank #3 (Hold).

Where Do Zacks' Investment Ideas Come From?

You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>

Published in