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The PC Market May Be Dying, but Apple Is Still Minting Money in It

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Despite a lower volume of sales, Apple earns far more in profit in the PC sector than its competitors.

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With the rise in popularity of mobile computing devices, the PC industry has seen sales collapse in recent years. Just last week, market research firm IDC reported that in the first quarter of 2013, the PC industry's unit sales slid 13.9% year-over-year.

Minyanville's own Michael Comeau has described the decline as the "toasterization" of the PC, where the PC has gone from being a source of interest in and of itself, to being, like a toaster, merely a means to and end, in this case a device that allows consumers to edit photos or access Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX).

(See also: My Apple iMac Is Starting to Look Like a Toaster.)

PC giants like Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) have taken especially big hits in this era, but Apple's (NASDAQ:AAPL) iMacs and Macbooks continue to rake in robust profits, according to a report from industry analysis firm Asymco.



Source: Asymco

As seen from the charts, even though Apple's share of the PC market was smaller than the top 5 of Dell, HP, Lenovo (PINK:LNVGY), Acer (TPE:2353), and Asus (PINK:AKCPF) in the last quarter of 2012, it topped them all in terms of operating profit, thanks to its outsized margins.

(See also: Time Out! If You Didn't Know PC Sales Were Horrible, Then You Haven't Been Paying Attention.)

Of course, the key difference between Apple and its rivals in the PC market is that Apple computers come bundled with the company's own operating system, whereas original equipment manufacturers (OEM) like HP rely on Microsoft's (NASDAQ:MSFT) Windows operating system.

So while Microsoft might still be profiting off licensing fees even as PC sales fall, OEMs that have engaged in a race to the bottom have seen net income slide thanks both to the unpopularity of Windows 8 and the larger secular decline of the industry.

Aysmco's Horace Dediu writes:
The real problem for the PC vendors is not that they have such low margins -- they've had low margins for decades. It's that the volumes which "made up for" low margins are disappearing. Apple is not immune to a gradual erosion of Mac volumes, but they have positioned themselves for growth with devices and content commerce and services. They have essentially "escaped" PCs and indeed caused the need to escape in the first place.

The problem is what could the others do? It seems all they can do is depend on Microsoft getting their strategy right.

For PC makers, the problem will only get worse: In a research note to investors, Deutsche Bank analyst Chris Whitmore said that he expects PC sales to drop another 8% this year, and 5% in 2014.

Whitmore also pointed out that the newly private Dell would lower margins in order to gain market share, which could result in further profit declines for HP and the other Windows PC makers as well.

As for Apple, even though it accounted for 45% of all PC operating profit in Q4 2012, Wall Street apparently still isn't satisfied: Apple's share price continues to hover near its 52-week low.

Ahead of its quarterly earnings results next week, Apple has also had its price target cut to $650 from $600 by Stifel and to $550 from $575 by Mizhuho.

(See also: Apple Might Be the Bigger Loser in the Apple-Samsung Breakup.)

Twitter: @sterlingwong
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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