PCs Q2A – Signs of life

RFM still expects the PC market to grow in H2 2014.

• Both IDC and Gartner gave their estimates of the PC market in Q2 and both are seeing signs of improvement.
• IDC saw a 0.1% growth YoY in Q2 while Gartner saw the slowest decline since Q2 2012 with a fall of 1.7% YoY.
• Between the two the message is clear: The PC market has stabilised, setting the scene for a better H2 2014E.
• RFM continues to believe that both IDC and Gartner are not counting the market correctly.
• This is because all devices in the tablet form factor are counted as tablets while RFM believes that a portion of them should be counted as PCs.
• The Surface Pro 3 is a great example. This is a device that is capable of performing as a laptop or even as a desktop and it runs desktop software.
• This device, and many, like it are actually PCs and represent sales for Intel, Microsoft as well as the usual supply chain.
• Hence RFM removes these devices from its estimates for the tablet market and includes them in its estimates for the PC market.
• This makes sense because RFM believes that these tablets are finally in a position to begin replacing laptops or even desktops and are in fact part of the PC market.
• When these devices are added back into the estimates for the PC market a better picture emerges.
• The laptop replacement cycle is very overdue for a bump and now there is a reason for users to make the upgrade.
• Consequently, RFM expects that the next two years will see improving growth from the PC market that lasts for two or three years before slowing down to low single digits again.
• This is already being helped by the expiry of support for Windows XP which has triggered a surge in corporate upgrades to Windows 7.
• Consequently RFM is expecting a couple of good years for the PC market, regardless of how it is classified, and Intel and Microsoft will benefit.
• Going into an upturn, I would look at Intel, Microsoft and also Asustek and potentially Lenovo. (Lenovo needs to digest Motorola (see here)).