Worldwide PC Market Update
- The period of pent-up product refresh is nearing an end
- Strong competition from Smart Phones
- Smart Tablets are different to PC Tablets
- PCs are replaced more slowly than mobile phones
- In 2010 100 million PCs were shipped
- PC Brands accounted for $183 billion
- PC installed base reached 649 million
- The extended PC market was worth $370 Billion
- In 2016 150 million will be shipped
- PC Brands will account for $136 billion
- The installed base will decline to 615 million
- The extend PC market will be worth $307 billion
The PC Market Is The Most Important ITC Sub-Market
ITCandor updates its ITC Market Model every quarter, which startups and major suppliers use to help with market planning. In addition to the overall sizing by category (Hardware, Software, IT Service and Telecom Service) we also take pains to polish specific sub-markets to size and forecast individual offerings, of which the PC market is the most important. We have a full set of data on this market available for our customers to use in addition to this paper, including details by country, brand, industry sector and consumer v commercial user – so please contact us at mhingley@itcandor.com if you need more.
Over the last two years we have seen how smart phones have expanded user access to corporate applications – especially for younger, Generation Y employees. We have also seen a strong move towards virtualising PC interfaces as part of an ongoing corporate client refresh. Moving forward we will see a massive expansion of Big Data from a widening number of input devices, such as set-top boxes, gaming consoles, satellite navigation and new internet appliances.
In 2010 there was a strong growth in PC shipments – when the ‘physical’ beat the ‘virtual’. This was mostly due to the ‘elasticity of replacement’ caused by the suspension of capital spending during the recession.
The Market For PC Brands Was Worth $183 Billion In 2010
The PC market is a very large one –in 2010 PC brands generated $183 billion revenues, while the extended market was worth $370 billion, encompassing brands, contract manufacturing, components, software and channel margin (although this includes overlapping vendor to vendor revenue).
In this research paper we size the market by area, publish market shares and forecast the PC market to 2016. In doing so we take a more pessimistic view than many, judging that the competition from alternative devices will lead to a declining future for PCs – in particular, that between 2010 and 2016:
- The worldwide installed base of machines will drop from 610 to 615 million
- The revenue for PC brands will drop from $183 to $136 billion
- Shipments will decline from 200 to 150 million
There are more positive opinions – that every virtual machine needs a physical devices, that there will be a continuous demand for higher graphics resolution for HD video, that the average price of a PC is diminishing as a proportion of disposable income in emerging countries, etc. However, these arguments are being made by large suppliers with vested interests in maintaining something akin to the current PC product definition. We believe they will have to make some big changes in order to continue to enjoy growth.
PC Tablets And Smart Tablets Will Remain Distinct Form Factors
Central to the future success of the PC is over the definition of ‘Tablet’. We don’t include Apple’s iPad (19.5 million shipped worth $12.4 billion in the year since their introduction) and the spate of Android machines in our PC analysis, as they are based on smart phone operating systems, are tied to App Stores and are based on ARM processors (Intel admits that it has almost no business in this area). In their brief period of existence they have already out-shipped all PC Tablets, which are included here. These are PCs based on x86 processors and Windows operating systems: their relatively high prices have restricted their use to specific vertical market applications (in hospitals for instance). They are differentiated from standard PCs by their lack of a keyboard.
Of course technically these two different technology bundles might merge over time: Intel can use its Atom processor in new Tablets for instance and motion controllers can play a growing role as PC input devices: however we believe PC Tablets and Smart Tablets will remain distinct for a long time, not least because there are a small number of component and software suppliers with massive revenue and net income dependent on the PC form factor. The reticence of major PC players is natural, as is the open playing field it has created for new Smart Tablet players to exploit.
We believe that there is something of a generational difference in computer usage which results in stronger growth for ‘consumer’ as opposed to ‘producer’ technology – that remote computing via keyboard entry and installed applications by older users is being replaced by streaming of data from centralised databases and location-activated ‘apps’ by younger ones.
HP Leads The Worldwide PC Market
In year to the end of Q1 2011 the PC Brand market was worth $185 billion worldwide, a growth of 13% over the previous year (see figure 1). We believe it is dominated by major suppliers – with the top 7 accounting for 86% market share (up from 85%). We have seen some interesting movements. In particular:
- HP leads the market, although its market share has declined strongly from 22.3% to 20.9% during the year
- Dell has seen its PC business grow slightly faster than the market, resulting in an 18.6% share in the last year
- Lenovo was in third position o growing its market share strongly from 10.1% to 11.7%; as a Chinese supplier it has stronger access to emerging countries than many
- Apple’s Macintosh – and importantly Mac OS – business has allowed it to grow its market share during the year slightly to 9.6%, putting it in fourth position
- Of the other major vendors, Samsung and Toshiba grew market share, while Acer fell strongly during the year
HP And Dell Vie For First Position In The PC Market
HP overtook Dell as leading PC brand in 2007 – a lead which increased during the recession due to Dell’s greater reliance on the business market. HP was able to enjoy greater growth as consumer spending was less affected by the down turn. Figure 2 shows the development of PC revenues for all leading brands from 2003 to Q1 2011. In shows some interesting changes. In particular:
- The PC business is heavily seasonal, dependent on consumer spending in the Christmas period and with new products put in lace over the summer for the ‘back to school’ market in September; it will be interesting to see the extend to which Asian spending, with a stronger growth in the first quarter of the year, will begin to influence the market in future
- Lenovo has performed better than the second division players and is perhaps most likely to challenge HP and Dell over time
- Samsung has also seen good growth: it is likely to do well in the rest of 2011, since it is a Korean supplier with less dependence on Japanese components, which have been compromised by the earthquake of course
- Apple has seen a strong growth in its Macintosh business since 2003 and is becoming increasingly important as an alternative operating environment
PC Areas Move In Sync
As part of ITCandor’s market model we look at an extension of the PC market beyond the brands into subservient areas, which all develop in close formation. Our forecasts extend to these areas and are shown in Figure 3. We note some important developments. In particular:
- All areas were deeply affected by the market downturn in 2008, before recovering strongly in 2009
- We predict that the revenue generated from the PC market in Q4 2010 will remain the highest of all time – at least within our forecast period to the end of 2016
- Contract Manufacturing has grown more strongly as most major brands (with the exception of Fujitsu and Samsung) have outsourced all PC production
- Component revenues are locked to PC brand revenue development, although their suppliers can shift more easily to other form factors: we see component shortages caused by Japanese earthquake acting as a brake on the PC market during the second half of 2011
- Channel margins are expect to remain at 4% of brand revenues during the forecast period
Invest In Contract Manufacturing And Software If You Want Stronger PC Growth
The value growth of the extended PC market by type is shown in Figure 4. It demonstrates the stronger growth of Contract Manufacturing and PC Software in recent quarters: these are the areas you might want to priorities if you’re interested in investments.
Worldwide PC Installed Base Will Never Exceed 700 Million
As part of our extensive PC research we have developed a view of unit shipments: from that we have also developed a view of the installed base, using a replacement model that uses a 7-year replacement cycle. The results in terms of worldwide unit numbers are shown in Figure 5. Although Intel and other argue a shorter cycle, we believe that most PCs find second users if discarded by the first within 4 years.
Our predictions are that the PC market is nearing its peak and that the worldwide installed base will never grow to be larger than 700 million. In addition we believe that shipments will decline from 200 million in 2010 to 150 million in 2016. Undoubtedly PCs have longer replacement cycles than Smart Phones, which increases their importance as installed products.
Some Conclusions – The PC Market Continues To Offer Big Opportunities
The recession created a pent-up demand for hardware, which led to very strong growth rates in 2009 and 2010 and was enjoyed by all suppliers: however we shouldn’t be fooled into thinking this is a long-term phenomenon. PC Brand growth was just 5% in Q1 2011 – having declined each quarter since the 28% growth in revenues and 31% in Q1 2010. We believe the market has already peaked in terms of revenues and shipments and will reach the top in terms of installed base (674 million) at the end of 2013.
We are very interested in your opinion – especially if you disagree and believe the PC market will continue to grow. ITCandor intends to look in detail at the Smart Phone and Smart Tablet sub-markets in the near future in order to make more predictions about user and device types and expand our ideas about ‘producer’ and ‘consumer’ client types.
As always please comment below to share you thoughts with other readers.
Filed under: Corporate Desktop Futures, PC
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