Last year, analysts from Gartner and IDC predicted that we might see tentative signs of recovery in the PC industry this year as enterprise upgrades to Windows 10, Skylake, and new all-in-ones finally sparked some signs of growth. That could still happen later this year, but it hasn’t happened yet — Q1 2016 sales fell 11.5% according to IDC and 9.6% according to Gartner. Total unit shipments were below equivalent sales in 2007.
“Vendors that had a strong consumer focus struggled to increase sell in shipments. There was no particular motivation for U.S. consumers to purchase PCs in the first quarter of 2016,” said Mikako Kitagawa, principle PC analyst for Gartner. “There have been increased sales of two-in-one PCs, but not enough to offset the decline in desktop and traditional notebook sales.”
The reasons for the continued decline range from an enterprise upgrade cycle to Windows 10 that isn’t expected to kick into gear until late this year, continued deterioration of foreign currencies against the US dollar (a strong dollar means foreign consumers pay more for US products), and political instability in Latin America all counted against the struggling industry.
IDC also noted that sluggish inventory clearance caused problems through much of 2015 and into 2016, though that activity is thought to be wrapping up. “Demand for PCs in the U.S. remains sluggish,” said IDC Research Director, Devices & Displays, Linn Huang. “However, we should be entering a period of reprieve. Peak corporate and education buying seasons have historically started in the second quarter. With some IT buyers thinking about early Windows 10 transitions and with the potential continued ascent of Chromebooks in U.S. K-12, the PC market should experience a modest rebound in the coming months.”
Intel has dodged most of the negative impact on its financials thanks to increased reliance on its server and software divisions. The firm’s strong position across the entire PC market has also given it some room to maneuver on revenue — 2-in-1’s are the industry’s one bright spot, and Intel owns the overwhelming majority of those design wins.
AMD has taken a hammering from declines in the PC market, and nothing in the first quarter results suggests that’s changed. While AMD’s problems can’t be blamed solely on the precipitous drop in PC sales over the past six years, the firm would have earned hundreds of millions of dollars in additional revenue if the PC market hadn’t slowed so dramatically.
To put this in perspective: In Q1 2010, the PC industry shipped 84.3 million units compared with 60.6 million units in 2016, a decline of 23.7 million systems. If we assume that AMD might have won 18% of that 23.7 million and earned a net profit of just $25 per chip, that’s $106.65 million of profit that’s vanished into the ether, in one quarter. Granted, these numbers are hypothetical, but they serve to make the underlying point — AMD’s financial problems these past few years aren’t just a result of the company’s competitive position — they’ve been critically exposed by declines in the PC space.
Intel may not be taking the beating that its rival has, but the manufacturer is still concerned about long-term segment performance. When Intel sat down to talk about its then-upcoming Haswell launches back in 2013, it talked about a five-year upgrade cycle. When we talked to the company last summer, that number had shifted to an eight-year upgrade cycle. The ugly truth is that many households aren’t upgrading their PCs on any cycle — and they’re not exactly going crazy for tablets, either.
These issues underscore the difficult climb AMD is facing with its Zen architecture, which will be slugging it out with Intel to claim pieces of a shrinking pie. They also illustrate why Intel would love nothing better than to find a way to reactivate historic Moore’s law scaling and return to the good old days when semiconductors reliably doubled in performance every 18-24 months. Microsoft’s new upgrade policy around Windows 10 is designed for a future in which people don’t upgrade their hardware on a regular basis, but that policy doesn’t favor hardware companies that rely on regular upgrade cycles.
Palmer Luckey has argued that VR could revitalize the PC industry, but such recovery would be limited to PC gamers able to afford the high cost of VR — and right now, with $1,500+ all-in costs, that’s not many. VR could give the luxury and boutique industries a needed lift, but there’s no real evidence that these small segments are in trouble to begin with. The PC gaming business is robust, but dedicated gaming rigs (self-built or pre-assembled) are a distinct minority of the total PC industry.
Right now, industry analysts are hoping that enterprise upgrades will kick the PC business into a net uptick by the end of the year. If they don’t, we may find out just how bad things can get.