PC Shipments Dip Slightly in Q3, Outlook Remains Cautious

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 2.7%, lower than the research firm’s earlier forecast of a decline of 3.7% predicted in October this year. The improved estimate is largely due to higher-than-expected sales in Western Europe and Japan.

Another factor that led to the improvement was increased spending in mature markets as a result of system refreshes and enterprise system migrations beyond Microsoft's (MSFT) XP operating system. Notably, the development of entry-level PC models such as Microsoft’s Windows 8.1 with Bing helped increase PC sales in the third-quarter of fiscal 2014 and is expected to drive sales in the upcoming quarter as well.

Also, the demand for Google (GOOGL) Chromebooks is on the rise in the low-end commercial market, which is expected to moderate the decline in PCs.

Buoyed by an estimated 7.1% growth in PC shipments (144.1 million) in mature markets, IDC now expects global PC shipments to hit 306.7 million units in 2014. PC shipments in emerging markets (162.6 million) are however expected to be down 9.9% in 2014.

IDC also stated that sales of PCs declined only 0.5% on a year-over-year basis in the third quarter of 2014, backed by the extension of PC replacement cycles and the latest low-cost consumer PCs.

IDC also stated that PC market cannibalization by tablets is weakening in developed markets. The reduction of PC prices by vendors is turning out to be an added positive.

Although temporary strength has been seen in the PC market, IDC expects to see further declines in the long run (until 2018). Per IDC, PC shipments will decline 3.3% in 2015 compared with an earlier forecast of a 2.3% decline.

What’s worse, IDC also anticipates consumer PC shipments to decline 5% in 2014.

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

Separately, IDC projected that tablet shipments worldwide will likely reach 235.7 million units in 2014. The growth in overall tablet shipments is expected to be 7.2% in 2014, down from 52.5% in 2013. The deceleration is primarily due to a decline in shipments of Apple's (AAPL) iPad tablet as consumers are not replacing their devices as often as expected.

Conclusion

To sum up, the current phase of system upgrades and PC refresh cycles remain near-term catalysts for the industry. Over the long term, PCs have to slog it out with other computing devices currently available, as returning to growth still remains a distant possibility. The decline will badly hurt the business prospects of companies like Hewlett-Packard Company (HPQ) that rely substantially on the sale of PCs.

Currently, Apple carries a Zacks Rank #1 (Strong Buy). Microsoft and Hewlett-Packard both hold a Zacks Rank #3 (Hold). Google, on the other hand, carries a Zacks Rank #4 (Sell).

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