Last updated: August 23, 2010 6:41 pm

Summer chill for PC makers as sales wilt

 
boy holding up i pad outside apple store

Competition from Apple’s iPad has exacerbated weak consumer demand, analysts said

The technology industry’s recovery faces derailment as consumers appear to be turning away from personal computers, analysts warn.

Weaker-than-expected consumer PC sales at the start of the key back-to-school shopping season in the US are casting doubt on the recovery’s sustainability and may force computer makers to cut prices sharply, the analysts say.

More

On this story

IN Technology

Strong consumer demand for PCs last year, even in otherwise depressed economies such as Europe and the US, powered the global technology sector to a rapid rebound. Microsoft, maker of the Windows operating system, posted a 22 per cent rise in its revenues in the quarter ended June, while Taiwan’s tech manufacturing-focused economy grew by 8.2 per cent.

This boosted confidence among leading computer makers. Acer, the world’s second-biggest PC company, in June revised upwards its forecast for the third quarter, to 15 per cent more than the second quarter, compared with a previous forecast of a 10 per cent increase. JT Wang, chairman, said at the time that average PC selling prices were rising for the first time in five years.

Chart: US PC sales

“It’s a very rare event in our industry but consumers are still happy,” he said.

But signs are now pointing to consumers turning away from buying PCs in record amounts, particularly in the US. Acer said its July shipments were 38 per cent lower than June’s, and on average PC sales in the US were down 15 per cent in July, according to Jenny Lai, analyst at CLSA.

July is a typically slow month for the PC industry, but more worrying is the latest sales data that show a further deterioration in the first week of August.

“August should be the start of the back-to-school sales season, so this is very unusual,” Ms Lai says.

In discussing its otherwise strong third-quarter earnings last Thursday, Hewlett-Packard singled out weak consumer demand for notebooks as a trouble spot, which analysts say has been exacerbated by competition from Apple’s iPad tablet computers.

“There’s a big question about consumers” more broadly, says Sanford Bernstein analyst Toni Sacconaghi. HP is more exposed to consumer sentiment than Dell, the third-biggest, with close to half of HP’s PC shipments headed for households.

Ryan Lee, analyst at Taipei-based Topology Re-search Institute, says the US back-to-school season is “supposed to give a lift to shipments, but that is just not there”. He says some PC makers have adapted by switching to cheaper and less powerful components, but if demand remains weak “it is quite likely that they will need to cut prices, because you can’t make too many adjustments on components without consumers noticing.”

A 5 to 10 per cent cut is most likely, according to CLSA’s Ms Lai, adding: “If they cut prices in the US they’ll cut prices globally as well.”

Most PC makers, however, so far seem unperturbed. Acer this month reaffirmed its guidance and said the July sales drop was due to temporary adjustments before “the introduction of more competitive IT products using Intel’s new CPU and chipset design starting in August and September”.

Michael Dell, Dell chairman, said last week that “demand trends continue to be favourable”. Only Asus, the world’s fifth-biggest PC brand, has said it would adjust prices in September to reflect falling component prices.

While PC makers and their processor suppliers are reiterating a solid outlook in their most recent earning calls, Shane Rau, a director at research company IDC, says the “softness” in demand is causing concern and that 2011 remains a wild card.

Additional reporting by Joseph Menn in San Francisco

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in