Stocks in hardware and software companies linked to PC sales were "carried out" on the back of news that desktops and notebooks recorded the steepest decline in sales, in the first quarter of the year.
Last week, the International Data Corporation (IDC) said PC sales saw the biggest slump since it started measuring the sector in 1994, the fourth consecutive quarter of year-on-year shipment declines.
IDC revealed the shipment of PCs declined almost 6% more than originally forecast for the first quarter of 2013, dropping 13.9% year-on-year. According to Gartner, there was an 11.2% decline in PC sales in the first quarter of 2013, with all regions showing a decrease in shipments.
One of the major reasons behind the drop was Microsoft's Windows 8 operating system's failure to captivate and ignite the market, said the IDC.
Knock-on effect
According to asset manager Vestact, the decline showed in stocks of major PC manufacturers, and led to Microsoft being downgraded to a sell by Goldman Sachs and Nomura. Microsoft shares lost 4.5% after the IDC report, HP was off nearly 6.5%, Intel slid nearly 2%, Acer lost more than 3%, and Lenovo was "crushed" in morning trade, in Hong Kong, dropping 6%.
"And the list goes on," says Vestact in a trade note. "It is sad in a way to see the devices and big names that you used in the past being reduced to the 'has been' pile."
IDC said HP remained the top vendor, although shipments also showed a 23% year-on-year decline for the first quarter. Lenovo followed close behind, surprising with its attack strategy and a double-digit increase in shipments to the US.
The restructuring of Dell led to a global decline of 10%, while sales to Asia/Pacific returned to positive growth. Acer Group also saw a substantial decline in shipments, but managed to increase its market share from 8% in the last quarter of 2012 to 8.1% in the first quarter of 2013, added IDC.
Apple fared better than the overall US market expected, but still saw shipments decline as its own PCs also face competition from iPads, said IDC.
Vestact analyst Sasha Naryshkine says the problem is that investors want innovation immediately, which almost never happens. He adds that this is one reason Dell aims to delist, because of the pressure from investors.
Naryshkine adds that PC makers need to adjust to the changes in the way consumers behave. However, Vestact is "mindful that these businesses will change".
Long time coming
Naryshkine says there is a question as to whether people need computers in the home, or whether a smartphone or a tablet is sufficient. He says investors would have done well to avoid PC stocks in the last five years, because computing power has moved into people's pockets.
Earlier this year, IDC predicted tablet sales will overtake desktop PCs in 2013 and portable PCs in 2014. In 2013, worldwide desktop PC shipments are expected to drop by 4.3% and portable PCs to maintain a low growth of 0.9%.
The tablet market is, however, expected to reach 190 million shipment units with a year-on-year growth of 48.7%. It also predicts the shipment of smartphones will grow by 27.2%.
In the past five years, HP shares have dropped 54%, while the Standard & Poor's index - which ranks the top 500 US companies by market capitalisation - has moved 20% higher, says Naryshkine.
Apple, which has done poorly recently on the back of results that failed to please the investor market, has gained 192% in the past five years, says Naryshkine. He adds that, over the same period, Dell lost 24%, and Lenovo - which is more thinly traded - was up 23% on the back of market share gains.
However, so far this year, Lenovo has been hit 14%, while both HP and Dell are higher, says Naryshkine. Microsoft has seen its shares fare better, dropping only 4% in the past five years, while it has gained 7.8% so far this year, he says.
Vestact portfolio manager Byron Lotter writes that sales of PCs have been an interesting trend to watch over the last few years, especially since tablets and sophisticated smartphones have thrown a huge spanner in the works.
Lotter says the decline in sales is a "big drop". "The most obvious reason is the introduction of tablets as a direct competitor. Not everyone sits behind a desk; in fact, a huge portion of the workforce is on the go on a day-to-day basis. Before tablets, those people used to lug a laptop around; now the obvious choice is a tablet."
The decline in PC sales and lacklustre demand for Windows 8 is interesting because, unfortunately for the likes of HP and Dell, the standard of the operating system is out of their hands, says Lotter.
"This is why Steve Jobs was so adamant on creating both the hardware and the software. As an absolute control freak, he did not want the Apple user experience in the hands of another company"
Lotter does not see the trend in declining PC sales decreasing, which he says highlights why investors need to be on the ball when investing, especially with technology stocks.
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