PC Makers Fighting a Losing Battle
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As discussed in a previous article, the PC era may be drawing to a close as consumers gravitate towards smartphones and tablets. This thesis was borne out by the most recent data from technology research firm Gartner. It stated that worldwide PC shipments in the second quarter of 2012 totaled 87.5 million units, a decline of 0.1 percent from the year ago period. This was the seventh consecutive quarter of very little growth.
Hewlett-Packard (NYSE: HPQ) continued to be the leader in the sector with nearly 15 percent of the market (25 percent in the U.S.). However, its worldwide shipments declined 12.1 percent. China's Lenovo Group was a close second with 14.7 percent of the market. Dell (NASDAQ: DELL) dropped to fourth behind Taiwan's Acer and another Taiwanese company was fifth, Asus. Only Asus showed rapid growth, with a near-40 percent gain in market share.
Conditions do not look likely to improve either. For example, Acer is forecasting zero growth in the quarter ahead. Meanwhile HP continues its restructuring efforts and Dell has been shifting its focus more and more toward higher margin software and services businesses with some recent acquisitions. Both firms are trying to respond to the fact that the PC business has turned into a very low margin business with an increasing focus on low-cost manufacturing areas in Asia.
The only real hope the PC makers have for some sort of spark is the launch in October of the Windows 8 operating system from Microsoft (NASDAQ: MSFT). Many in the industry believe Windows 8 is the best offering from Microsoft in a very long time. But there are many doubters that Windows 8 will be enough to breathe life back into the PC market.
Several weeks ago, analysts from BMO lowered their price targets for HP and Dell citing among a number of concerns higher component costs. But BMO's analyst, Keith Bachman, also has doubts about Windows 8 boosting PC sales. He was quoted in a Reuters article as saying, “Windows 8 will prove to be a disappointment, at least out of the gate.”
Mr. Bachman may be right. If one looks at the details released so far about Windows 8, it seems to be designed with mostly tablets in mind (such as being compatible with ARM architecture) and may not have a lot of impact on PC and notebook sales. Investors should not forget that Microsoft launched its own version of a tablet – the Surface – recently.
Bottom line for investors? Stay away from the PC sector entirely and that includes companies which supply chips to PC makers such as Advanced Micro Devices (NYSE: AMD) and to a lesser extent, Intel (NASDAQ: INTC). AMD issued an earnings warning recently stating that second quarter revenues would be down 11 percent versus the first quarter. Its previous estimate was for a 3 percent rise. The cause? Weak PC sales. Meanwhile, Intel just warned about lower revenues in the second half of 2012 due to a lower amount of chips ordered by PC makers.
The weak PC environment also lead Bernstein earlier this week to cut earnings estimates for both AMD and Intel. AMD's estimate was chopped to 52 cents a share this year versus the prior estimate of 90 cents a share. Even Intel's estimate got shaved a little, from $2.48 a share down to $2.44 a share. Intel, of course, has a much more diverse stream of revenue than does Advanced Micro Devices.
Instead of PC-centric stocks, tech investors should continue to stay with the hot smartphone and tablet sectors led by Apple, Samsung, Arm Holdings and others.
tdalmoe has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services recommend Intel and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.