Investing in personal computer (PC) makers probably isn’t the best use of your money at this time or even going forward, according to my stock analysis.
Based on my stock analysis, the demand for archaic desktops, and laptops to a lesser degree, is fading fast, and you can thank Apple Inc. (NASDAQ/AAPL) and the other tablet makers.
Sales of PCs in the U.S. plummeted by 11% year-over-year in the second quarter, according to International Data Corp. The decline was six percent based on research by Gartner Inc. but this figure was based on sales of PCs and laptops combined. On a global basis, PC shipments fell 0.1% year-over-year, but Gartner’s research indicated it was the seventh straight month of declines or only slight increases. My stock analysis shows that the PC market is in deep trouble, unless PC makers can reinvent the PC and laptop to challenge the tablet.
As I have commented on numerous occasions, my stock analysis is that the money is with the foremost maker of tablets and mobile computing. Apple is the king of tablets with a global market share nearing 70%. (Read “Heavyweight Bout—Apple vs. Samsung.”)
The global market for tablets is estimated to rise to around $31.9 billion this year, with over 100 million units delivered, according to Visiongain. By 2016, IHS iSuppli estimates that about 360 million tablets will be sold. By comparison, global PC shipments are estimated at 528 million in 2016, according to IDC. In the U.S., PC sales came in at 71.3 million in 2011, down five percent year-over-year and the first decline since 2001.
Just take a look at the recent quarterly results from Dell Inc. (NASDAQ/DELL) and Hewlett-Packard Company (NYSE/HPQ), which are both facing a downward spiral in PC demand.
Dell beat in its fiscal second-quarter earnings season, but the second-biggest PC maker in the U.S. slashed its fiscal 2013 earnings outlook to $1.70 per diluted share from $1.90 per diluted share. Based on my stock analysis, Dell is facing lower demand for PCs due to rising tablet sales. This will continue to be an issue that the company must address but it will not be easy, according to my stock analysis. Dell said the lower PC sales were due to customers delaying purchases and waiting for the launch of the new “Windows 8” operating system by Microsoft Corporation (NASDAQ/MSFT), but my stock analysis is that this reason is a half-truth.
Revenues from the consumer segment sunk 22% in the second quarter, and Dell warned that revenues for the company will fall two to five percent sequentially in the fiscal third quarter.
“Growth in our PC business was challenging, as we saw a tough macroeconomic and competitive environment, and continued to focus on higher-value solutions in this business,” said Dell CFO Brian Gladden. (Source: Dell press release, “Dell Reports Second Quarter Financial Results,” Aug. 21, 2012.)
In the case of Hewlett-Packard, revenues in the fiscal third quarter fell five percent year-over-year.
“HP is still in the early stages of a multi-year turnaround, and we’re making decent progress despite the headwinds,” said Margaret Whitman, HP president and CEO, in the report. Whitman partly blamed the weakness on the weaker PC market, where revenues in the Personal Systems Group fell 10% year-over–year, with a six percent decline in desktop sales and a whopping 12% decline in notebook sales. The big decline in notebooks is clearly related to the rising demand for tablets as a viable replacement, based on my stock analysis. (Source: Marketwire, “HP Reports Third Quarter Results,” Aug. 22, 2012.)
Is this enough evidence for us to believe that the PC market is dead? My stock analysis says yes.