COMMENTARY For a beleaguered personal computing industry, which has seen falling unit sales over the last six months, the Consumer Electronics Show (CES) was an exercise in desperation. Too many ultrabooks that were supposed to save their bacon looked like MacBook Air wannabes. Last year saw a PC market contraction -- the first in a decade. Then Microsoft said that things are worse than most people are thinking.
The standard industry rationalization at the moment is flooding in Thailand that limited supplies of hard drives manufactured there. But that's not the real reason. PC vendors are in a mature market where it's ludicrous to expect unit-sales growth and the cost of machines -- and the margins they are supposed to bring manufacturers -- continue to plummet. All those investors who got upset because HP (HPQ) wanted to get out of the PC business are about to have heart palpitations because the company remained in it. They just don't know it yet.
Fickle finger of blame
Blaming lowered PC sales on a lack of hard drives is understandable. Most people automatically deny disaster when it stares them in the face. But the notion doesn't hold up when you look at the claim in context.
If hard drives were really the factor, you might expect the following things to be true:
- PC sales would have been fine before it happened.
- A lack of supply would have drive PC prices up.
- Retailers would take advantage of being able to maintain prices.
But what really makes the hard-drive-ate-my-business argument hard to swallow is the distribution of the sales drop. According to Gartner, worldwide PC unit shipments in the fourth quarter of 2011 were down by 1.4 percent (not including the iPad or other tablets). But they were also down by 1.1 percent in the first quarter of 2011. U.S. unit sales were down 6.1 percent in the first quarter
The floods in Thailand happened in the fall. Causality isn't running backwards for this exercise, folks. And Gartner says the drive shortage has yet to have its biggest impact, which will happen this year.
A flipping mature market
As Gartner pointed out, growth in emerging markets was steady because of low PC penetration within households. But in mature markets, consumers and small businesses were the main reason for the drop. People don't have the extra money, with tightened credit, stagnated wages and high unemployment.
PC penetration in these very markets is already high. Many of the consumers who could juice sales already have computers, often more than one. How many do they need? As the action moves to cloud computing, older machines will last longer and longer because storage and processing will happen elsewhere.
And things could get much worse. In 2001, during a recession and the dot com implosion, U.S. PC shipments dropped by 12 percent.
So what about Apple, which saw 20.7 percent U.S. growth in the fourth quarter? The company is picking up market share from competitors. And how many people found that a smartphone or tablet satisfied their desire for a new computer?
Maybe things will pick up again as emerging countries continue growth. But the prices for machines will be much lower, which means less revenue and less profit.