Global sales of notebooks, by contract manufacturers, dropped to the lowest level in three years in the first quarter. The local channel, currently fighting a continuing weak rand, was not spared the fragile economic conditions.
Contract manufacturers of notebook computers suffered a worse-than-expected first quarter after shipments to clients like Apple and Hewlett-Packard tumbled to the lowest level in three years, according to a PC Dynamics Market Brief from information and analytics provider IHS.
"Many factors conspired to knock the legs out from under the ODM [original design manufacturer] notebook PC market ? such as economic weakness in major markets and the clearance of older models from inventory," says Peter Lin, senior analyst for computer platforms at IHS.
Lin adds that notebook ODMs and their brand-name customers are also contending with the robust competition in the consumer market coming from smartphones and tablets.
In a recent address, Reserve Bank governor Gill Marcus noted the world is in its sixth year of crisis, and SA's weak first quarter economic growth rate of 0.9% is, to some extent, consistent with what is happening globally and in other emerging markets.
Although the economy recovered relatively quickly from the 2009 recession and grew 3.1% in 2010 and 3.5% in 2011, growth moderated to 2.5% in 2012 and, since the crisis, has lagged emerging market peers, Marcus said.
Below expectations
According to IHS, global shipments of notebook computers from ODMs came in at 33.2 million in the first quarter, a 17% quarter-on-quarter drop. "The steep loss in the first quarter marked a reversal from the increase in shipments of the fourth quarter," says IHS.
Overall, the decline in the first quarter was four to five percentage points lower than what had initially been forecast, confirming an even more debilitated market, and the latest numbers were the worst of the last 12 quarters, says IHS.
Gartner expects the overall market to grow 5.9% in 2013, but this will be driven by tablets, which should increase 67.9%, while traditional PC sales are expected to fall 10.6%. In May, IDC said notebook sales would fall 3.2% in emerging markets and 11% in developed countries this year.
IDC's information indicates notebook sales will pick up and grow by 6% in 2017 in emerging markets, and recover slightly, to grow 0.1%, in mature markets, by the same year. Notebook ODMs ? all based in Taiwan ? boast PC giants as clients, including Apple, HP, Dell, Samsung, Lenovo, Acer, Asus and Toshiba.
"Many users are realising that everyday computing, such as accessing the Web, connecting to social media, sending e-mails, as well as using a variety of apps, doesn't require a lot of computing power or local storage," says Loren Loverde, programme VP for IDC's Worldwide Quarterly PC Trackers.
Users are putting a premium on access from a variety of smaller devices with longer battery life, an instant-on function, and intuitive touch-centric interfaces, adds Loverde. "These users have not necessarily given up on PCs as a platform for computing when a more robust environment is needed, but this takes a smaller share of computing time, and users are making do with older systems."
Gartner notes that demand for ultramobiles will come from upgrades of both notebooks and premium tablets, and as the devices draw demand away from other devices.
Not immune
AxizWorkgroup executive for software and enterprise, Craig Brunsden, says the situation is no different in SA, and the traditional desktop and notebook client business has been under pressure for some time. "The channel inventories have been high over the past few quarters, which has buffered the vendor results somewhat but on the ground, we feel the effects."
The success of tablets in the local environment is also tracking the other parts of the world, and this is hurting the mobile PC business, says Brunsden. "It's really a case of the supply chain finding its feet with the combinations of the various 'client' form factors (including tablets)."
The market saw this trend when notebooks displaced desktops as the form factor of choice, and a similar trend is happening now between notebooks and tablets, says Brunsden. As Windows 8.1 and more touch devices hit the market, AxizWorkgroup expects this trend to accelerate, he adds.
Heinz Stephan, director of Comztek's consumer solutions unit, says what is happening to the notebook market is "not a rosy picture". He says the fall in sales is a sign of a global market that continues to be in a cautious trading situation and there is prolonged weakness in major markets, placing pressure on the big brands and the entire supply chain to clean-up existing inventories in the channel.
Stephan says forward order books are under pressure and the big brands are starting to short forecast and ordering cycles. However, he does not expect a major swing-around ahead and, although there may be some improvements in the second quarter, or last half of the year, strengthening competition from smartphones and tablets "is here to stay".
The big brands are finding it increasingly difficult to remain bullish in the long-term, and are looking for other revenue lines to assist in achieving growth targets, says Stephan. He notes this leads to more innovative mobile devices, gaming, thin clients and data centre products and servers supporting cloud services.
However, IHS notes shipments from ODMs are expected to improve in the second half of the year, as lower-priced ultrathin PCs with new touch-enabled features become available on the market, along with the release of a more powerful microprocessor from chipmaker Intel. Microsoft will also be lowering the licence fee for Windows 8 on notebooks with a screen size of 11.6-inches or less, adding to incentives for consumers to buy new laptops, says IHS.
Weak rand
Brunsden adds the weak rand, which fell out of bed and dropped to its worst level against the dollar in four years about a month ago, has added an extra dimension to the problem and disrupted supply. Currently, the currency is at R9.89 to the dollar.
"I think it may have harmed the consumer section, but rather than stop unit sales specifically, it forces customers to buy down," says Brunsden. He adds that AxizWorkgroup feels the weaker currency has hurt channel margins more than sales at this stage.
In SA, pricing is all over the show, and too much variety and unstable prices combined with a mobile revolution is creating uncertainly, says Stephan. He adds it does not take much for consumers to hold on to their money in the current market conditions.
Businesses are not exempt from this sentiment, and a move towards cloud services trims the need for ever more powerful notebooks and leads to a growing inclination to sweat assets longer, he notes.
Stephan comments that the effect of the recent rand weakness has not been fully realised and the supply chain is bleeding inventories and remaining cautious. Businesses and particularly consumers do not transition to higher prices easily, and while competitive market forces will lead to a staggered effect, the final result is inevitable, he adds.
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