- IDC has recently forecasted that PC shipment will consolidate over the next four years.
- However, recent trends in PC demand point to a resurgent opportunity on the back of PC refresh, and Windows 10.
- Two immediate investment ideas that come to mind are Apple and Microsoft.
- Both companies have exposure to traditional computers, and have stable fundamentals as well.
The PC industry has already gone through the most major slump we've seen in ages. 2013 was one of those years, where bears were loudly proclaiming the death of the PC. This put downward pressure on various players within the PC ecosystem like Intel (INTC), Microsoft (MSFT), Dell, Hewlett-Packard (HPQ), and even Apple (AAPL). Miraculously enough, many of the major tech giants escaped 2013, and entered into 2014 with extremely low expectations.
Not so surprisingly, it turns out that PC stabilization had occurred, and many companies were looking to replace their PCs, which put into effect a PC refresh cycle. This boosted demand, and put a floor underneath shipments. The most indicative factor was Microsoft’s OS licensing revenue in FY 2014, which fell slightly y-o-y in FY 2014 to $16.856 billion from $17.529 billion. Going into the next fiscal year, industry analysts have deeply discounted the positive impact a new Windows operating system paired with falling SSD prices would have on PCs.
IDC projects that tablets will grow at a 5.4% CAGR over the next four years, which is a downward revision from a 12.1% growth rate that was previously forecasted.
Admittedly, the average user is expected to own multiple computing devices. Therefore, I’m somewhat skeptical of tablets completely displacing demand for laptop and desktop computers. With a rising population of middle class workers, I anticipate that the amount of demand will increase, as more and more of the global labor force shifts away from manufacturing and agriculture into services and technology related fields.
In this case, IDC makes the case that much of the demand from emerging markets will be for tablet computers. But from my experience, tablet computers aren’t really great at multi-tasking, and are only effective in the workplace for certain use cases, but not for others. Plus there’s a lot of productivity software that’s targeted at desktop and laptop computers, so I couldn’t see why a large number of users would bring a tablet into the workforce, when it’s obvious that a desktop or laptop computer would be much more proficient at certain tasks.
Going forward, more functionality may be built into a tablet, and the components powering the device will likely get more powerful. However, the same could be said about laptop and desktop computers. So even if we were to apply the argument of more computing power, it doesn’t mean that performance of tablets will surpass laptops or desktops.
A more convincing indicator of resurgent PC demand may be the sheer number of PCs that are due for replacement.
There are over 600 million PCs that are either desktop or laptop that are over four years old. This indicates that the PC market could recover sometime in 2015. Assuming some organic demand from emerging markets paired with the pre-existing base upgrading, shipment growth could exceed 10%.
Going into calendar year 2015, many companies will take advantage of this mix-shift back into PCs over tablets. One of them is Microsoft, as the company’s licensing business is its third largest business. Another alternative is Apple, which has a great portfolio of products across smartphone, tablet, and PCs.