Worldwide PC shipments are expected to drop this year - the first annual drop since 2001, and slowing sales are weighing on companies such as Intel and AMD.
Despite earlier predictions of a slight gain during the year - compared with 2011 sales - global shipments are set to decline in 2012 for the first time in 11 years, according to the IHS iSuppli Compute Platforms Service at information and analytics provider IHS.
The total PC market this year is expected to shrink 1.2%, to 348.7 million units, down from 352.8 million in 2011, says IHS. "Not since 2001 - more than a decade ago - has the worldwide PC industry suffered such a decline."
Slower PC sales are being blamed on the impending launch of Microsoft's first new operating system in three years - Windows 8 - as well as a growing shift towards tablets, and the general economic slowdown, which has weighed on global economies since around 2009.
Unfulfilled dreams
Craig Stice, senior principal analyst for computer systems at IHS, says: "There was great hope through the first half that 2012 would prove to be a rebound year for the PC market." However, three quarters into the year, the usual boost from the back-to-school season appears to be a bust, he says.
"Optimism has vanished and turned to doubt, and the industry is now training its sights on 2013 to deliver the hoped-for rebound. All this is setting the PC market up for its first annual decline since the dot-com bust year of 2001," says Stice.
The Register reported in 2001 that IDC chopped its forecast for total worldwide shipments for the year to 129.6 million units - a 1.6% decline and the first year-on-year drop in worldwide PC sales in 16 years. In 2000, PC sales grew 15.7%, it said.
Murky outlook
IDC says global PC sales contracted sharply in the third quarter of the year, dropping 8.6% year-on-year, while Gartner puts the drop at 8.3%. In August, IDC said the global PC market would grow just 0.9% in 2012, to 367 million units, making it the second year in a row that PC sales have grown at under 2%.
The channel has been focused on clearing out Windows 7 inventory to make space for Windows 8, which launches next Friday. In addition, continued pressure from other products such as tablets and smartphones, the global economic outlook and uncertainty over the impact of Windows 8 led to lower shipments in the third quarter.
"PCs are going through a severe slump," says Jay Chou, senior research analyst, Worldwide PC Tracker. "The industry had already weathered a rough second quarter, and now the third quarter was even worse. A weak global economy as well as questions about PC market saturation and delayed replacement cycles are certainly a factor, but the hard question of what is the 'it' product for PCs remains unanswered.
"While ultrabook prices have come down a little, there are still some significant challenges that will greet Windows 8 in the coming quarter." IDC expects a weak PC market in the lead up to Windows 8.
However, consumers could respond positively to vendors' line-up of innovative products and designs, which could see a return to positive growth at the end of this year, says David Daoud, research director of personal computing at IDC.
IHS says there are signs that a strong rebound could still occur in 2013. "The new ultrabooks and other ultra-thin notebook computers remain viable products with the potential to redraw the PC landscape, and the addition of Windows 8 to the mix could prove potent and irresistible to consumers."
Feeling the pain
However, component suppliers are seeing the slow down in their numbers. Intel yesterday reported flat quarter-on-quarter revenue of $13.5 billion, which was a slight improvement on its expectations. The third quarter was down 5% year-on-year.
CFO Stacy Smith says the group's third quarter numbers were negatively impacted by macroeconomic weakness, leading to softness in both the consumer and enterprise market segments. "In addition, we saw a reduction in inventories in the PC supply chain versus the normal increase in the third quarter.
"We saw a reduction of microprocessor inventory levels across the worldwide PC supply chain when compared to the second quarter as customers remain cautious given macroeconomic uncertainty and ahead of the Windows 8 operating system release," says Smith.
Intel expects fourth quarter revenue to come in at slightly higher than the third three months of the year. "This slight increase in revenue in the fourth quarter reflects the caution we are seeing in the order patterns of our customers as a result of concerns about the global economic environment, ongoing consumer softness in mature markets, and a slowing enterprise market segment," says Smith.
Competitor AMD says it expects revenue to drop 10% in the third quarter, from a previously expected decline of around a percent. "The lower than anticipated preliminary revenue results are primarily due to weaker than expected demand across all product lines caused by the challenging macroeconomic environment," it says.
Third quarter gross margin was also negatively impacted by weaker than expected demand, leading to lower than expected average selling prices for its Computing Solutions Group products, and lower than expected use of its back-end manufacturing facilities.
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