Connect the dots,
La la la la
-- Pee Wee Herman
Yesterday afternoon, market research firm IDC dropped a bomb by announcing that first-quarter PC industry unit sales fell a whopping 13.9% year-over-year.
That's bad enough to mark the worst quarterly performance since IDC started tracking the industry in 1994.
This news was surprising!
Or was it?
Because when I look back at the industry since the release of Windows 8 in October of 2012, I see nothing but bad news and worse statistics.
So riddle me this -- can you name a single positive data point regarding PC industry sales in recent memory?
The drop is PC sales should come as no surprise.
See any companies guide up because of PC demand?
Any retailers unable to keep computers in stock?
Is anyone selling a kidney for a Windows 8 PC?
And then look at the negative side.
We saw this little tidbit back in December 2012 (see: The 'Toasterization' of the PC, and Why Things Really Are Different This Time
Last week, PC industry bulls were hit with a major shock after NPD released some critical data regarding the reception to Microsoft's (NASDAQ:MSFT) Windows 8 following its October 26 release.
According to NPD, US Windows Device Sales fell 21% year-over-year during the initial four-week sales period. Notebook sales dropped a whopping 24%, while desktops decreased by 9%.
And during this period, just 58% of Windows buyers opted for Windows 8. The last time around, Windows 7 accounted for 83% of sales.
I went on to point out the following:
In Q3 of that year, the quarter preceding the Windows 7 release, PC sales rose 0.5%, according to Gartner. But in Q4, PC sales rocketed up 22%. A major factor in that improvement was the easy year-over-year comparison (Q4 of 2008 was disastrous for PCs), but still -- 22% unit growth isn't bad for a relatively mature market.
And how did PC sales actually shake out in Q4 of 2012?
IDC said they were down
6.4%.-- versus up 15.2% in Q4 of 2009 when Windows 7 was released.
Gartner said they were down 4.9% -- versus up 22% for the Windows 7 release quarter.
And again, these were on very easy year-over-year comparisons. So not only was there a new operating system, but the growth hurdle was extraordinarily low.
But wait! There's more.
On March 18, 2013 our good friends at IDC told us that PC shipments were weak in February.
Take it from them:
"Based on our latest quarterly figures, global PC shipments were expected to decline by 7.7% in the first quarter as vendors and the supply chain work through the Windows 8 transition," said Loren Loverde, Program Vice President, Worldwide PC Trackers at IDC. "However, our February monthly data suggest that we could see a drop touching double-digits in the first quarter and a mid-single-digit decline in the second quarter before we see any recovery in the second half of the year. Even getting to positive growth in the second half of 2013 will take some attractive new PC designs and more competitive pricing relative to tablets and other products."
So yes, Q1 was disappointing, but no one should be surprised at that based on the enormous wealth of readily available information that indicated that PC sales were horrendous.
So please folks, ignore the sensationalist headlines that imply that the drop in PC demand is some kind of shocker.
In fact, I may be going long Microsoft in the near future simply because people actually seem freaked out about this well-telegraphed "disaster."
Now, let's talk about why.
PCs are facing two big problems.
The first is the mobile device boom, which includes tablets like the Apple
(NASDAQ:AAPL) iPad and Google
(GOOG:NASDAQ) Android devices, as well as alt-notebook devices like Chromebooks.
(See: The PC Isn't Dead, It's Just Gone 'Ultramobile'
These devices are functional enough to handle most people's modern computing needs such as using Facebook
(NASDAQ:FB) or watching movies on Netflix
These devices are also relatively cheap compared to decent laptops, and they're new. New is fun. New is sexy. New is worth talking about. new is worth spending money on.
And then there's the other elephant in the room that nobody wants to talk about: "toasterization" (see: My Apple iMac Is Starting to Look Like a Toaster
), which is my semi-nonsensical way of saying that PCs are now basically household appliances with zero sex appeal.
Twenty-five years ago, people who bought computers were specifically interested in the computers themselves. That audience was excited for every technological development in the industry and was pumped to upgrade.
But now PCs are mass market and function mostly as conduits to access what the general public really values (Facebook, Spotify, Twitter, Gmail, etc); they're the equivalent of basic household appliances.
Who needs a fancy computer these days? I'd say people doing graphic design, video editing, heavy gaming, stuff like that.
For everyone else, a computer just has to turn on and have a functioning Internet connection.
So why buy a new one?
Position in AAPL
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