Friday, July 20, 2012

Why the U.S. PC Market Shrank by 10.6 Percent

The worldwide personal computer (PC) market saw growth stall in the second quarter of 2012 (2Q12), with shipments falling 0.1 percent from a year ago, according to the latest market study by International Data Corporation (IDC).

The results are slightly below IDC's May projections of 2.1 percent year-on-year growth, but in-line with projections of a slow second and third quarter before faster growth by year end.

Part of the reason for slow 2Q12 sales was disappointing sell-out of distribution channels during the first quarter. This limited demand from channels that are wary of building inventory ahead of new product launches this fall.

Moreover, consumers remained reluctant about purchasing PCs in this environment of tech transition and soft economics. Ultrabooks have not yet produced any meaningful rise in volumes, perhaps due to the perceived high price and questionable added value.

Constrained demand in Europe and the U.S. has also been felt in emerging markets for some time, but the second quarter brought another milestone of sorts as Asia-Pacific (excluding Japan) showed flat year-on-year growth -- clearly, its worst performance in years.

"These latest results validate IDC's expectation that the second quarter would be a transition period where both economic factors and anticipation for new products in the second half of the year would result in relatively low PC shipment growth," said Jay Chou, senior research analyst at IDC.

The announcement of a Windows 8 launch date, as well as broader communication of new features in the OS, are key steps that may help to address the uncertainty about new product availability and help consumers and channels plan their purchases.

The U.S. market suffered a double-digit contraction in the second quarter as market saturation and economic factors combine with anticipation of Windows 8 and other changes later in the year. In this context, consumers are delaying purchases, and vendors and retailers are slowing down their PC activities to clear existing inventories.

The situation is exacerbated by the abundance of low-cost notebook PC options for consumers, a slowing replacement cycle in the commercial sector, and the big macro-economic and political events affecting confidence and spending.

"We don't expect PCs using Windows 8 to boost growth significantly until the fourth quarter, which leads to a conservative outlook for the third quarter," said David Daoud, research director, Personal Computing at IDC.

The U.S. market performed much worse than expected, shrinking by 10.6 percent -- compared to the forecast decline of -4.4 percent. Most vendors and their channel partners struggled with shrinking demand as a saturated market and lack of incentives are leading buyers to delay purchases of PCs for the time being.

To many in the industry, media tablets are likely becoming the great hope for a renewed market upside. That being said, the potential for healthy profit margins are still somewhat unclear.

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