Bloomberg News

Microsoft Windows Weak Demand Spurs Worst PC Slump on Record

April 11, 2013

Personal-computer shipments plummeted in every region of the world in the first quarter as buyers opted for smartphones and tablet computers and Microsoft Corp. (MSFT:US)’s newest operating system met with weak demand.

Global PC unit shipments fell 14 percent in the first quarter -- the worst such decline on record -- to 76.3 million, a bigger drop than the 7.7 percent decline IDC had forecast, the market researcher said in a statement yesterday. The slump was the steepest since IDC began tracking shipments in 1994.

Every PC maker except China’s Lenovo Group Ltd. (992) experienced declines as businesses chose to install Microsoft’s Windows 7 operating system on employees’ computers instead of the newer Windows 8, Jay Chou, an analyst at Framingham, Massachusetts- based IDC, said in an interview. Consumers also shunned Windows 8 in favor of smartphones and tablets, which can handle many of the same tasks, he said.

“We don’t have a lot of reason to be optimistic that the market will remain in more than replacement-cycle mode,” Chou said. Consumers have found Windows 8’s redesigned user interface disorienting, and prices for touch-screen enabled computers that run the software are still too high, he said.

The last time worldwide PC shipments experienced a double- digit percentage decline was in the third quarter of 2001, when the market was roiled by the Sept. 11 terrorist attacks and the impact of a decline in technology stocks, Chou said.

Windows Impact

Chou said Windows 8’s absence of the familiar “Start” button and the necessity for users to switch between desktop and tile modes are turning off potential buyers in stores.

Microsoft, based in Redmond, Washington, introduced the latest version of Windows and a tablet called Surface in October to appeal to consumers, who are increasingly adopting mobile devices to surf the Internet, access e-mail and store pictures, music, documents and other information.

Surface sales have gotten off to a slow start. Fujitsu Ltd. (6702) has blamed the poor reception to Windows 8 for weak PC sales, while Hewlett-Packard Co. (HPQ:US) Executive Vice President Todd Bradley said in January that sales of Windows 8 had a disappointing debut.

Microsoft said the data reflects an “evolving and highly dynamic” PC market, where handheld computers perform like PCs and laptops can convert into tablets.

“Windows 8 sold over 60 million licenses in its first few months, a strong start by any measure,” Mark Martin, a spokesman for Microsoft, said. “Along with our partners we continue to bring even more innovation to market across tablets and PCs.”

Microsoft’s shares dropped 4.4 percent to $28.94 at the close in New York, while Hewlett-Packard retreated 6.5 percent to $20.88. Intel Corp. (INTC:US), whose chips run more than 80 percent of the world’s PCs, fell 2 percent to $21.83. Advanced Micro Devices Inc. (AMD:US), the biggest semiconductor maker, fell 3.5 percent to $2.52.

Lenovo Holds

Gartner Inc., another market-research firm, said PC shipments declined 11 percent in the first quarter to 79.2 million units. Quarterly global shipments fell below 80 million machines for the first since 2009, Gartner said. IDC and Gartner both reported that PC shipments fell in the U.S., Europe and Asia.

Lenovo was the only top-five manufacturer that didn’t see a decline in worldwide or U.S. shipments, IDC said. Shipments at the second-largest global PC supplier were unchanged from the first quarter of 2012, giving it a current market share of 15 percent.

Hewlett-Packard remained the No. 1 worldwide supplier with a market share of 16 percent, although unit shipments declined 24 percent from a year earlier. Dell Inc. (DELL:US) was third with 12 percent of the market after shipments declined 11 percent.

The severity of the declines at Hewlett-Packard and Dell stem from the companies’ protracted attempts to turn around their businesses, IDC said. Hewlett-Packard has been seeking to recover from years of strategy shifts, including an aborted plan to spin out its PC business, and Dell is pursuing a plan to go private amid a worsening outlook for desktop and laptop sales.

U.S. Market

In the U.S., Hewlett-Packard and Dell held the top two spots in market share, with 25 percent and 22 percent respectively. Apple Inc. (AAPL:US) was third with a 10 percent share. Lenovo, which was fifth with 9 percent, saw shipments climb 13 percent.

“Lenovo continues to outperform its traditional PC competition and there is still plenty of room to take share in this market,” Brion Tingler, a spokesman for Lenovo, wrote in an e-mailed statement.

Apple’s market-leading iPad tablet and its iPhones are helping the company cope with slumping PC demand compared with other manufacturers, Chou said.

“They are certainly better hedged against the decline of PCs than other vendors,” he said.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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