PC Vendors Must Look to New Areas for Profit

The PC market saw one of its lowest-ever growth rates in Q1’16 (PC Decline at Worst Point in Nine Years), but – says Gartner – profit opportunities still exist for PC makers.

“Over the last five years, global shipments of traditional PCs (desktops and notebooks) have fallen from 343 million units in 2012 to an estimated 232 million units in 2016,” said Gartner’s Meike Escherich. “In terms of revenue, the global PC market has contracted from $219 billion in 2012 to an expected $122 billion in 2016.” This is largely due to PCs being replaced by alternative devices like tablets and smartphones.

Mid-tier vendors are especially under pressure. Escherich notes that, between them, Acer, Fujitsu, Samsung, Sony and Toshiba have lost 10.5% market share since 2011. In addition, regional markets are changing. Former growth regions like Brazil and Russia are being affected by low oil prices and political uncertainty. The top markets – the UK, USA, China, Germany and Japan – still lead in volume, but consumers are still cutting the number of PCs per household.

It is important to focus on profitability, not sales numbers, to maintain growth, said analyst Tracy Tsai. The ultramobile segment, for example, is the only PC form factor expected to record revenue growth in 2016, rising 16% YoY to $34.6 billion. This sector is forecast to eclipse all others in 2019, with revenues of $57.6 billion. Gross margins here can reach up to 25% for PCs priced at or above $1,000, compared to 5% margins on $500 budget PCs.

Adoption of ultramobiles will continue to grow, thanks to replacement demand and a desire for the touch experience. ASPs will fall, although not rapidly, towards $600 in constant-currency terms.

Another area to focus on for long-term profitability is the gaming market. This is a small one, with only a few million PCs sold each year. However, ASPs are much higher: from $850 for an entry-level gaming PC to $1,500 for a premium product.

Finally, vendors can also look at the IoT, and identify areas with potential for profit. The IoT can be used to improve both products and customer service; for example, a sensor can check if components are getting too hot, and send an alert to the user.

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