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PC sales figures for the second quarter of 2002 are out, and the outlook remains murky. International Data Corp. (IDC), a market-research outfit based in Framingham, Mass., confirmed what many semiconductor and computer makers have already told us: PC demand remained weak in the second quarter.
Unit shipments were still down -- by 0.5%. The industry has witnessed an entire year in which the year-over-year quarterly comparisons have been negative. Worldwide, units shipped came in at 31.08 million, slightly below our estimate at S&P.
The second-quarter shortfall largely came from weaker shipments from the newly combined Hewlett-Packard and Compaq Computer. Still, the combo is the global market-share leader with 15.1% of the business, but its shipments were down 16.2% for the quarter.
UNEVEN GROWTH. Meanwhile, Dell Computer came in closely behind, with 14.8% market share worldwide and 15.5% unit-shipment growth worldwide. IBM's shipments were off 8.8% year-over-year, but this was above our forecast, and it landed in the No. 3 spot, with 6.3% of the world market for the second quarter.
On a regional basis, PC shipments in the U.S. grew 1.8% year-over-year, while shipments in Europe, Middle East, and Africa declined 2.2%. In the U.S., demand from businesses remained muted, while consumer buying weakened in the latter part of the quarter, according to IDC. All of the PC vendors have confirmed the tough environment in recent weeks. In Europe, the trend was similar: Demand from the business market was limited, and consumer spending slowed.
The focus for the PC market has now shifted to the promise of the back-to-school season. The May-June demand (also known as Dads and Grads) proved weaker than expected, and it will probably be another month before the industry has a solid reading on how strong the back-to-school season will be.
NEXT UPGRADE CYCLE? We at S&P are currently forecasting flat sequential growth (quarter-over-quarter) for PC unit shipments worldwide in third-quarter 2002, and we now believe that shipments for the year will likely be flat. This is a reduction from our prior forecast for 2002 to be up about 4% for the year.
Our PC forecast may prove conservative if the back-to-school or holiday-selling season attract more consumer buying (system prices are getting very attractive!), or if corporate demand suddenly picks up, due to out-of-date equipment and the desire to upgrade current PCs to faster, cheaper models. While we're forecasting some seasonal growth in PC demand in the fourth quarter, we believe it will more than likely trend toward typical seasonal patterns and that a significant upgrade cycle won't occur until 2003.
We're currently neutral on the PC category given the uncertain outlook for demand -- both in magnitude and in timing. Dell (DELL
) and HP (HPQ
) are both rated hold for this reason. We acknowledge that Dell has taken market share as the low-cost producer. But given the pricing pressures and limited demand outlook for the sector, we have remained neutral on Dell shares.
CHEAP MACHINES. We rate IBM (IBM
) an accumulate, but this is an investment recommendation based on its competitive advantages in services and software, not as a play on the PC market.
While the demand outlook for PCs remains clouded, the age of PCs that were used in the massive upgrade cycle surrounding Y2K are now approaching the point in which an upgrade is necessary. In addition, price-cutting has made PCs relatively inexpensive. If an economic recovery gets added to the mix, 2003 could prove robust.
Analyst Graham-Hackett follows computer hardware stocks for Standard & Poor's
Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
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