PC Shipments Decline Moderates in Q1

One of the most significant trend for 2014 is the stabilization in the PC market. It’s true that the latest reports from Gartner and IDC reveal that total PC shipments declined in the first quarter of 2014 as well, marking the eighth consecutive quarter of decline. However, the rate of decline was lower than the declines in the past seven quarters.

Industry research firm, Gartner, stated that annual sales of PCs declined 1.7% on a year over year basis to 76.6 million units in the first quarter of 2014. The weakening in global PC shipments is largely due to a shift in consumer preference toward tablets and mobile devices in the emerging markets.

The rate of decline however contracted from 13.9% in the first quarter of 2013, 10.9% in the second quarter, 8.6% in the third quarter and 6.9% in the last reported quarter of 2013. The rate of decline moderated primarily due to buyer’s preference for Microsoft’s (MSFT) XP upgrade sequence. Enterprises are keen to buy computers rather than opting for tablets and mobile devices.

As per data provided by IDC, PC shipments contracted 4.4% on a year-over-year basis to 73.4 million units in the first quarter of 2014. The decline was less than the research firm’s forecast of a 5.0% drop in the same quarter. IDC also forecast that approximately 33.3% of PCs run on XP and therefore Microsoft’s plan to upgrade its operating system to Windows 8.1 and a decrease in tablet shipments will soften the rate of decline in global PC shipments.

Moreover, for full year 2014, IDC forecasts PC shipments to decline 6.1% on a year-over-year basis, lower than a 9.8% decline in the previous year. The rate of contraction was primarily due to stabilization in the U.S. economy, with tablet cannibalization tapering off. IDC also predicted that PC shipments growth on a continuing basis will be less than zero.

It is worth mentioning that the emergence and continued adoption of handheld computing devices from Apple (AAPL), Samsung and other Asian companies are also cannibalizing PC sales.

As per data provided by Gartner, Lenovo, with a 16.9% share of shipments, remained the market leader ahead of H-P. Additionally, shipment volumes increased 10.9% year over year.

Hewlett-Packard remained in the second position with a 16.0% share of shipments, up a marginal 0.9% on a year-over-year basis. Shipment volume increased 4.1%.

Dell secured the third place, with a shipment share of 12.5%, up from 11.2% a year earlier, along with increase in shipment volume of 9.0%.

Acer occupied the fourth place with a 7.3% share of shipments compared with 8.4% in the year-ago period. Additionally, shipment volumes also dropped 14.8% year over year. IDC’s data more or less matches with Gartner, but is not exactly the same.

We believe that the continuous decline in PC shipments raises a question about growth of the PC industry. The decline will badly hurt the business prospects of companies like Hewlett-Packard Company (HPQ) and Intel (INTC) that rely substantially on the sale of PCs. The ability to innovate and migrate to mobile platforms and/or data centers may be the only possible solution for these players.

Currently, Microsoft, Apple and Intel all carry a Zacks Rank #3 (Hold). Hewlett-Packard on the other hand carries a Zacks Rank #2 (Buy).

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