Dan Gallagher reports in the Wall Street Journal:
PCs have turned out to be a surprising bright spot in tech’s universe of late. PCs aren’t returning to their days of heady growth. Global shipments in the first nine months of this year rose only 0.6% compared with the same period last year. But that comes after several years of declines. And it drives home the fact that for all the new types of computing devices that have emerged over the last decade, PCs remain the primary way most people get work done.
In an era of folding smartphones, who knew the plain old personal computer could still be interesting?
And yet, PCs have turned out to be a surprising bright spot in tech’s universe of late. Evidence of that came In the recently wrapped earnings season, where the strongest reports among large-cap techs came from the old “Win-tel” pair of Microsoft and Intel Corp.
Despite a production shortage, Intel’s PC chip division saw revenue jump 16% year over year to a record level above $10 billion. Investors may be focused on Microsoft’s growing cloud business, but the division that includes licensing from its Windows operating system and sales of its Surface computing devices also saw revenue rise 15% year-over-year to $10.6 billion.
PCs aren’t exactly returning to their days of heady growth. According to IDC, global shipments in the first nine months of this year rose only 0.6% compared with the same period last year. But that comes after several years of declines. And it drives home the fact that for all the new types of computing devices that have emerged over the last decade, PCs remain the primary way most people get work done.
Consider the reactions to Apple Inc.’s unveilings last month of redesigned versions of its MacBook Air and iPad Pro. The latter is squarely aimed at business users, with Apple touting its performance capabilities against top-of-the-line laptop computers. But reviewers have been nearly unanimous in their reactions that even with all the tablet’s enhancements, the device still can’t quite replace a laptop for many tasks.
Which is not to say that tablets don’t have their place. In fact, the decline of the PC market roughly coincides with the birth of the tablet market. Apple launched its first iPad in 2010, with several Android devices following soon after. PC shipments peaked globally at about 367 million units in 2011 and are now tracking about 29% below that number, according to IDC. For those who were buying lower-end PCs simply for the purpose of tasks like email and media consumption, the tablet offered a compelling and easier alternative.
That said, most of the corporate world still runs on Windows, Microsoft’s ubiquitous operating system. And the life cycle of that platform still drives sales, even if on a somewhat delayed basis. According to Mika Kitagawa of Gartner, much of the recent uptick in PC sales stems from many businesses finally deciding to cycle out of Windows 7—which Microsoft first issued in 2009—to Windows 10, which has now been on the market for more than three years.
Those businesses aren’t just settling for the cut-rate towers of old. Shipments of what Gartner defines as premium ultramobile PCs—a segment mostly made up of thin, top-of-the-line laptops—jumped 16% last year and will grow another 8% this year, vastly outpacing the broader PC market.
PC makers HP, Lenovo and Dell, which together comprise more than 60% of that market, finally took a page from Apple’s design playbook and are now selling their own premium laptops. Many critics consider HP’s Spectre series and Lenovo’s Yoga series to be on par or even superior to Apple’s MacBook devices. Premium PCs also tend to be better moneymakers. Gartner estimated in 2016 that gross margins on PCs priced over $1,000 can be as high as 25%, compared with 5% for PCs priced under $500.
Lenovo reported an 18% jump in sales for its PC division for the September quarter. HP and Dell’s fiscal quarters ended in October.
Investors may rightly wonder if the PC market’s current uptick is a blip. Alternative devices like tablets still pose competition as their capabilities improve. But PCs are benefiting from growing demand for premium devices, which helps raise average selling prices. And enterprise demand seems likely to keep up for a while, especially as Microsoft will be ending extended support for Windows 7 by early 2020.
The company said on its last earnings call that more than half of its enterprise installed base has now switched over to Windows 10, which also means plenty of upgrades remain to be done. For Intel, analyst Pierre Ferragu of New Street Research projects demand for the company’s PC processors will grow in the low single digits. Shares of Microsoft and Intel have also performed better than their large-cap tech peers, rising 6% and 8% since their respective earnings reports. Apple, Amazon.com and Google-parent Alphabet Inc. have averaged a loss of 8% since their own reports. The PC business may be aging, but it’s not ready for retirement quite yet.
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