PC industry in for a ‘bumpy ride’ but will bounce back

6 Mar 2009

Worldwide PC shipments fell 1.9pc in the fourth quarter of 2008 following five years of almost uninterrupted double-digit growth.

As the economic environment continues to deteriorate in 2009, PC shipments are expected to fall by more than 8pc in the first half of 2009 and gradually improve to a small positive growth in the fourth quarter, according to IDC’s Worldwide Quarterly PC Tracker.

The financial crisis continues to spread as bank rescues expand, key industries falter, stock values drop and unemployment rises steadily, among other signs of stress in economies around the world.

This is clearly the biggest financial shock in a long time. Nevertheless, PCs are far more important and far less expensive today than they were in previous economic crises.

A typical PC today costs half what it did in 2000 at the beginning of the last recession, and prices continue to drop at a rapid rate, making PCs more affordable and less likely to be sacrificed in tough times.

The PC market is also more driven by replacements than it used to be. The five years preceding the 2001 recession saw PC shipments increase at a compound annual growth rate of 18.8pc, v 13.6pc for the five years before the current crisis.

This slower growth means a larger share of existing systems will need to be replaced sooner. In addition, the share of portables has risen dramatically from less than 20pc in 2000 to 50pc in 2008.

Portable PCs typically have a shorter lifespan than desktops, further supporting replacements, despite efforts to extend system life. The market went through a period of extending PC life cycles following the last recession, but it does not appear that they shortened much in the years since, and there is a limit to how long a PC’s utility can be stretched.

Although we’ve seen some dramatic declines in component shipments, a significant portion of that will be due to clearing of inventory, particularly because the crisis hit in the fourth quarter when inventory was at its peak.

According to IDC, we should not look at the drop in component shipments and annualise it, assuming that the trend will continue. Instead, we should see an initial shock to component growth, followed by more careful orders as businesses get a handle on inventory and demand in the new environment.

As such, the 11pc drop in PC processor shipments during Q4 should be more substantial than the impact on actual PC shipments over several quarters.

The PC market is also far more global today, IDC argued. In 2000, the US accounted for almost 37pc of PC shipments and emerging markets (including Asia/Pacific (excluding Japan), Latin America, central and eastern Europe, Middle East and Africa, and Canada) accounted for less than 30pc.

In 2008, the US share is down to 23pc and emerging markets are up to 49pc. While emerging markets have seen some of the fastest changes in growth, they started with faster growth, so that even in depressed times, volume is expected to fall only 4pc in 2009 compared to an 8pc drop in mature markets in 2001 during the last recession.

“To be sure, the PC market is in for a bumpy ride,” said Loren Loverde, director of IDC’s Worldwide Quarterly PC Tracker.

“Nevertheless, there are a number of reasons why the PC market will not fare dramatically worse in the current environment than it did in the 2001 recession – even if the current economic environment is notably worse.

“Pricing will become even more aggressive, and there will be further consolidation, but the PC industry will not go the way of the financial or auto industries in this cycle,” Loverde added.

By John Kennedy