For the past several years, PC sales have been on the decline. While Apple Inc. (AAPL) has bucked the trend by repeatedly posting slight gains, tech stocks like Hewlett-Packard (HPQ) that are heavily dependent on selling computers have been under pressure.
However, a report from Garter shows PC sales posting a 1% increase in the 4th quarter is a sign that the computer industry may finally be showing signs of staging a recovery.
Tablets Quickly Hit PC Sales Hard
Ever since Apple released the iPad in 2010, tablets have been competing against traditional computers — especially laptops which proved vulnerable to the tablets’ cheaper price, lighter weight and longer battery life.
There were early predictions that the tablet would kill the PC. That scenario hasn’t quite played out, but PC sales have suffered. In many homes, tablets have become the casual computing device of choice, many educators have embraced tablets and the devices have made inroads in the enterprise market.
2013 was the worst decline in the PC industry’s history and capped seven straight quarters of sliding sales.
HP saw its PC sales drop 9.3% on the year, Dell was down 2.2% while Lenovo (LNVGY) eked out a 2.2% increase.
What made the slump particularly alarming was the fact that two of the PC industry’s most influential players — Microsoft (MSFT) and Intel (INTC) — were in the midst of important new product rollouts through 2013. Microsoft was pushing Windows 8 with a radically redesigned new touchscreen user interface, while Intel introduced new Haswell processors.
Both releases were expected to spur a cycle of PC upgrades. Both failed to do so and couldn’t even slow the skid.
AAPL was one of the few tech stocks in a win-win position during this time. It was still selling boatloads of iPads and the popularity of products like the ultralight MacBook Air meant it was able to grow its Mac business in many of the quarters where overall PC sales were down.
Tablet Reality is Setting In
The ray of sunshine for PC-makers like HPQ who don’t have a strong tablet line-up to fall back on, is that tablet sales have begun to slow.
There are multiple reasons for this. Phablets — super sized smartphones — are replacing tablets for some people, and the upgrade cycle on tablets has proven to be much longer than expected, so many of the early adopters aren’t replacing their first iPad. Consumers are also realizing that laptops are just plain better for many tasks and that adding peripherals to a tablet (like a bluetooth keyboard and a stand) to equalize the equation simply ends up making the tablet as expensive and bulky as the laptop it was replacing.
According to Gartner analyst Mikako Kitagawa:
“Installed base PC displacement by tablets peaked in 2013 and the first half of 2014. Now that tablets have mostly penetrated some key markets, consumer spending is slowly shifting back to PCs.”
Winners From Increased PC Sales Numbers
While the industry as a whole would benefit from increased PC sales, those Q4 and preliminary 2014 overall numbers suggest some tech stocks are going to benefit more than others.
The preliminary yearly PC sales numbers show HPQ with year-over-year growth of 7.9%, Dell was up 9.9% and Lenovo hit double-digit numbers at 11.1%. AAPL numbers weren’t broken out worldwide, but its PC sales in the U.S. were up 11.5%, good enough for third place in its home market (behind HPQ and Dell).
Naturally, increased PC sales mean more Windows licenses sold for Microsoft. The fact that the Gartner numbers do not include Chromebooks — the cheap PC clones that run Google’s (GOOG,GOOGL) Chrome operating system — is particularly welcome news for Microsoft, who is also fighting a battle on that front.
More PCs also means more CPUs for Intel (who has yet to make a real dent in the mobile market), so put INTC on the winning side of any PC resurgence as well.
More Hope for the Future
Microsoft and Intel may have failed to kickstart PC sales through 2013 and 2014, but both are back at the table with critical releases and this time it seems as though they’ve got it right.
MSFT will be releasing Windows 10, an operating system that offers the modern look of Windows 8’s tiles, but also brings back the familiar Start menu, as well as replacing the creaky Internet Explorer with an advanced new web browser code-named Spartan. Unlike Windows 8, it looks to be a compelling reason to upgrade from older versions of Windows without being alienating to long-time users.
Intel hit the ground running at CES 2015, showing off the biggest upgrade in its history with every one of its consumer CPUs receiving the Broadwell treatment. The new CPUS are significantly smaller, faster and offer a big boost in video performance and power efficiency. The result is notebook PCs that set new records for thinness, with support for ultra high resolution displays and battery life that beats last year’s models by an hour and a half.
Windows 8 and Haswell couldn’t do it, but with more than 600 million computers out there that haven’t been upgraded in four years or more, the Windows 10 + Broadwell combo seems compelling enough to kick off a wave of PC sales.
If this happens, there’s good reason to believe that quarterly uptick in PC sales isn’t an anomaly, but the start of a recovery from the PC industry’s darkest days. That would be a redemption of sorts for former MSFT CEO Steve Ballmer, who argued we were entering a “PC-plus” world rather than a “post-PC” one.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
