Peak PC? Pandemic Sales Boom Is Set to Expire
(Bloomberg Opinion) -- PC sales are booming, and despite the industry’s cyclical past, Wall Street and the major PC makers believe strong computer demand will last for a long time to come. "We expect the return to office trend will continue to benefit Dell in the coming quarters,” read one representative report from Cowen. But there’s reason to be skeptical about these sunny projections. Based on past experience, the present boom times for personal computers could be more limited than people think.
For sure, the industry’s recent growth numbers have been extraordinary. During the pandemic, PC demand soared as the public built out their work-from-home offices, bought laptops to enable online learning and acquired hardware for in-home digital entertainment. According to research firm IDC, global PC shipments grew by 55% in the first quarter of 2021 compared to the prior year and rose by 26% in the fourth quarter of 2020.
PC makers are optimistic that there has been a sea change in daily habits with households and corporations permanently requiring the use of more computers per person. Wall Street generally agrees with Cowen’s prediction for robust PC sales through the end of the year. But it’s worth taking a step back: Before last year, PCs were among the sleepiest markets in technology. Industry shipments were either flat or negative in seven out of the last 10 years. And even though the pandemic drove big sales, the technology hasn’t actually seen much innovation.
The PC market could easily return to its no-growth past. Personal-computer software hasn’t changed materially. And with the minor user interface improvements in Microsoft Corp.’s upcoming Windows 11 release, it doesn’t look like the new operating system will spur an upgrade cycle either.
As for the recent spike in demand, there’s good reason to believe that the computer spending fueled by the pandemic won’t persist. During the fall, students are likely to go back to an in-person learning schedule, negating the need for additional in-home PC purchases, and corporate stipends to buy computers for remote work may disappear if employees increasingly return to physical offices. On top of all this, there’s the very nature of hardware purchases: Unlike subscription software with recurring revenue, once a consumer or employee gets a new computer they don’t need to buy another one for three to four years. It’s possible that demand over the past year has pulled forward sales from future periods.
Already, there are signs demand may be wavering. Lower pricing can be an early indicator of trouble ahead. And anecdotally at least, I’ve been noticing more discounting for PC systems on the technology deal websites I check daily. Beyond that, Bank of America credit card data shows that electronics category spending has decelerated from 40% growth year-over-year in March to a decline of 20% last month. While electronics are not a perfect corollary to computers, it may indicate that a spending shift from gadgets to outdoor experiences is now fully underway.
If PC sales do slow down, it will be bad news for companies such as HP Inc., Dell Technologies Inc. and Intel Corp. HP and Dell are the second- and third-largest PC makers in the world, respectively, after Asia-based Lenovo Group Ltd., according to market researcher IDC. And the latest data from Mercury Research shows Intel processors account for roughly 80% of the PC desktop market. Conversely, Apple Inc.’s Mac sales and Advanced Micro Devices Inc. processors may be less affected. Both companies currently have products with processing power that outstrips competitors and less share of their respective markets, meaning more runway to grow.
PC sales could keep on chugging along, of course, as our lives move ever more permanently onto the digital realm. But as the rest of the world returns to something closer to normal, there’s plenty of evidence to suggest computer sales will do the same.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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