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ITCandor PC Market Forecast Highlights
- PC Brands grew 17.4% to $184 billion in 2010
- The larger PC ecosystem grew 20.5% to $429 billion
- HP led the PC Brand market in 2010 with a 21.2% share
- Lenovo overtook Acer to reach forth position in 2010
- Revenue per employee is strongest in distribution, lowest in contract manufacturing
- Profitability is highest in software and components and lowest in contract manufacturing and distribution
- ITCandor forecasts a 6.4% PC Brand growth and 5.0% PC ecosystem growth in 2011
- Growth rates will decline each year before becoming negative in 2015
- PCs are usually ‘additional too’, rather than ‘replaced by’ alternative devices
- Profitability will stay at around the 5% level for the PC ecosystem over the next few years
ITCandor’s PC Research Model Extends Beyond Traditional Unit Shipment Approaches
With our vendor revenue data of Q4 and the full year 2010 collected and processed we thought it would be a good time to look at the worldwide PC market again: in particular to update our forecasts and answer a number of questions we have been asked about developments. We provide a view of the market which stretches beyond the purely ‘unit shipment’ approach of most of the largest IT research houses. In particular we extend beyond PC brands to software, distribution, components and contract manufacturing. The first two categories include revenues derived from sales to customers, the third – the mark-up from margins, while the last two include revenues which circulate only amongst IT vendors themselves. We also track net profit and employee numbers in our research and forecasts, which are essential for gauging the health of the sector. As always we are publishing only a tiny part of our findings here – so please contact us if you need more.
HP And Dell Dominate Worldwide PC Brand Market Shares In 2010
The world market for PC Brands was $184 billion in 2010 – up 17.4% from $157 billion in 2009. The overall ecosystem was up 20.5% to $429 billion, confirming the extent to which component sales are outstripping PC sales. We are of course still experiencing the ripples of the credit crunch and the destabilisation and destruction of traditional seasonality that caused.
The PC market recovered extremely strongly last year, despite competition from smart phones and smart tablets and push for virtualisation by the major infrastructure software vendors. We believe in fact that the more alternative devices and virtual desktops are used, the more important physical PC hardware becomes – analogous to the time long past when IBM claimed that every 100 PCs sold to a large customer created a mainframe sale.
HP (with a 21.2% share) and Dell (17.3%) dominated the 2010 market in much the same way they had the year before. Their slight loss of market share was due partially to the growth of Asian markets and resurgence of Japanese vendors. PC Brand market shares for 2009 and 2010 are shown in Figure 1.
The Affects Of The Credit Crunch Shows In PC Brand Revenue Development
Our data is created from modelling each player’s quarterly revenues from the beginning of 2003 onwards. All of the PC Brand vendors give values at some level for their PC business, the development of which is shown for first tier suppliers in Figure 2 and the second tier in Figure 3.
For the major PC vendors there are some important changes over time. In particular:
- HP has benefited from an expansionist strategy into emerging country markets and a long-term focus on consumer as well as business customers. It overtook Dell at the beginning of 2007 and has maintained a clear lead, despite experiencing substantial declines in 2009 as a result of the credit crunch
- Dell in comparison was over dependent on both the US market and business clients; unlike HP its PC revenues have yet to return to the levels of 2008
- Samsung has seen very strong growth in 2009 and 2010: it has used its massive manufacturing experience to move strongly into the PC market, although it still has some way to go before it challenges HP and Dell
- Lenovo’s strong growth in 2006 was the result of buying IBM’s offloaded PC business; it did not share in the strong growth other vendors enjoyed in 2007 and 2008, but has done very well in recent quarters
- Apple has experienced significant growth in its Macintosh business, despite the massive success of its iPhone and iPad introductions in 2008 and 2010; it demonstrates that, with proper planning, it is possible to avoid cannibalisation of your own business
The second tier PC brands have enjoyed varied market success. In particular:
- Acer managed accelerated growth – like Dell in previous years, leveraging market research company sizing to persuade channels and users to build its business; it suffered along with almost all others in the credit crunch; time will see if its currently stalled market growth returns to its previous double digit levels
- Toshiba and Sony are very long term players in the PC market; they have enjoyed accelerated growth in recent quarters, especially in Asia markets
All PC suppliers, irrespective of rank, suffered badly during the credit crunch and all have recovered. We still see a bumpy road ahead – especially as inventory levels are difficult to plan in the still unstable market conditions. Fears of recession, government austerity budgets and civil uprisings in North Africa all count against booming demand for PCs.
ITCandor’s PC Market Forecast – PC Brands Will Grow 6.4% To $196 Billion In 2011
Having sized the PC market from vendor revenues ITCandor uses the results as inputs into its forecast model from which the following discussion is drawn. Again, if you’re interested in which parameters we use and how we execute our forecast, please contact us.
We don’t believe the strong growth of last year will continue in this: however we are still positive about the PC market. We believe that there will be 6.4% growth in 2011 in PC Brands, with revenues reaching $196 billion worldwide. For a picture of our forecast for each type of PC supplier see Figure 4.
We believe that contract manufacturers will make increasing revenues from PCs, while distribution, components and software will remain each at around the $50 billion for the rest of the forecast period.
Channels Top, Component Makers Bottom Of ITCandor’s Revenue Per Employee Forecast
We track each supplier’s staffing levels each quarter, allowing us to look at dimensions such as revenue and profit per employee. Hardly surprisingly distribution is significantly ahead of other vendor types in terms of revenue per employee: so much so that we’ve used a logarithmic scale for comparison in Figure 5. For all vendor types we believe that the current level ($611k in 2010) will grow slightly (to $663k in 2015). Strong growth in revenue per employee in contract manufacturing in 2011 and 2012 will drop back in later years.
PC Software Highest, Channels Lowest In ITCandor’s PC Profitability Forecast
We track net profit along with revenues, allowing us to assess the profitability of the PC market and its suppliers. Our five supplier types have very different levels of profitability, as shown in Figure 6.
The high level of profitability in the software area is counter to its relatively small revenues. Similarly component manufacturers enjoy high profitability, due perhaps to the restricted choice in chips, disk drives and other PC components. We have seen a strong return to pre-credit crunch levels in 2010, but believe these will die down again in coming years.
Contract manufacturing and distribution both have comparatively narrow margins, reflected in their profitability. We expect this to continue throughout our forecast.
For PC Brands and all suppliers we expect profitability to drop slightly from 6% and 10% respectively in 2010 to 4% and 6% in 2015.
Some Conclusions – The Physical PC Market Will Remain A Strong Business
The credit crunch was extremely disruptive for the PC market, making the period between Q3 2008 and Q2 2009 a disastrous one for most vendors. There was an accelerated recovery from the latter part of 2009 onwards, putting paid to the idea that the recession would end the long period of success for what remains one of the largest single ‘offerings’ in the ITC market.
Looking out over the next few years we believe that something of the previous market seasonality will return, although planning inventory levels will be difficult – given the rapid speed at which PC technology ages, the necessity to ship by boat and the many negative influences on consumer and business budgets.
Vertically integrated approaches are very hard to achieve in the PC market, where product types are by definition interchangeable. Even Apple, which retains its own operating systems and tight-knot ecosystem uses Intel chips, allowing Macintosh customers to run Windows operating systems if they wish.
Perhaps the most important issue in the future of the PC market is the products interaction with other technologies. While users are buying an increasing number of alternative technologies, PC suppliers need to take up the challenge to simplify attachment, synchronisation and interoperability.
Overall we are not forecasting a return to 2010 growth levels within out forecast period, but we do see a profitable business and good opportunities for suppliers ahead.
Are you positive about the growth of the PC market. As always please let us know by commenting on this article.
Filed under: PC Tagged: | Acer, Apple, components, contract manufacturing, Dell, distribution, Fujitsu, Hitachi, HP, Lenovo, LG, PC, PC Brand, profitability, Samsung, software, Sony, Toshiba
