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Wednesday, April 18, 2012

Two Reasons Why the PC Market Upside is Unclear

The worldwide personal computer (PC) market saw a slight increase in volume during the first quarter of 2012 (1Q12) -- when compared to the same quarter in 2011 -- with shipments rising 2.3 percent, according to the latest market study by International Data Corporation (IDC).

The results are slightly above IDC's February projections of a 0.9 percent year-on-year decline due to anticipated hard disk drive (HDD) supply constraints in addition to weak economic conditions, competition from other devices, and continued uncertainty about Microsoft Windows 8.

HDD supply remained an issue through most of the first quarter, although PC makers generally had better access to drives than customers in the retail and distribution channels.

As a result, large PC vendors were able to maintain system shipments by managing inventory or absorbing price increases, while the impact to shipments from smaller PC makers was in line with IDC expectations.

"PC market growth was reduced in the first quarter as HDD supply and other factors limited demand," said Loren Loverde, vice president at IDC. "Nevertheless, history has shown that periods of slower growth are followed by recovery -- as improving technologies make replacements as well as new purchases increasingly compelling."

As a result, IDC expects that PC shipments will pick up significantly by the fourth quarter 2012, as HDD supply and pricing are normalized, Windows 8 is launched, and replacements are purchased.

Slow growth in the U.S. shows that despite interesting and new form factors like all-in-one (AIO) desktop PCs and Ultrabook notebook PCs, the market remains conservative and focused primarily on replacements.

Commercial buyers are still cautious, while consumers are evaluating multiple products for their needs. The U.S. PC market is likely to remain constrained at least until the launch of Windows 8, which is expected in the fourth quarter of 2012.

IDC expects vendors, retailers, and channel partners to focus their product lines and their general operations as they prepare for the year-end holiday season, because that alone will likely determine if there is any growth at all in the U.S. market in 2012.

That being said, given the recent slow adoption of new Windows OS versions (the legacy XP installed base is still significant), and the apparent minimal interest in expensive new ultrabook PCs, the full potential market upside is unclear at this time. Those are two very big reasons for continued concern.

Highlights from the regional outlook Include:

United States -- The market continued to exhibit weakness with shipments, due to saturation in the consumer market and low refresh rates in the commercial sector. Shipment growth of 1 percent over the first quarter of 2011 was in line with IDC's forecast of 0.6 percent growth. The quarter's performance reflects ongoing market changes as consumers consider media tablets instead.

EMEA -- Despite the region's sustained economic uncertainty and debt crisis, the Europe, Middle East and Africa (EMEA) PC market experienced a rebound, returning to positive growth again in 1Q12. They benefited from a more favorable year-on-year comparison versus the first quarter of 2011, when sell-in was adversely impacted by high inventory levels. IDC expected softer results in 1Q12 in light of the HDD shortages following the flooding in Thailand. However, both mature and emerging markets showed stronger than anticipated performance, driven by accelerating portable PC sales in particular.

Japan -- Buoyed by robust enterprise activity, Japan saw decent growth in the first quarter. Japanese vendors also fared better than in 4Q11 in dealing with the shortage of HDDs. Moreover, consumers continued to be receptive, and helped the market to surpass forecast.

Asia-Pacific (excluding Japan) -- This market was in line with IDC forecasts, though growth was limited. Hard drive supply issues contributed to slow shipment growth, although key countries like China and India, and vendors such as Lenovo and ASUS, continued to fare well.