It’s been a grim recession for computer companies. First quarter PC
shipments were down 8.1% from year ago levels and down 14% from the prior
quarter. But that’s what happens in recessions. The newer data, though, says
green shoots are sprouting, with important implications for business and
investors.
As this chart shows, the severe drop off in
demand has been punishing. But with technology advancing — and computers
aging — the seeds for a replacement cycle are in place. Morgan Stanley’s
analysts expect the up cycle to start in the consumer segment of the market
in the final quarter of 2009, then move on to small business buyers, and
finally big corporate buyers in the second half of 2010.
“We believe that global PC shipments are near the bottom and
that we are approaching the beginning of the next, long-awaited PC
replacement cycle,” Morgan’s report notes. Supporting that notion, a Monday
release from a meeting of the Global Technology Distribution Council, whose
member companies handle more than $100 billion in global technology sales,
noted that “the worst may be over.”
Maybe so. But this will be a different kind of recovery for tech companies.
One reason is that a key driver of demand in the next 18 months will be
smaller and smaller computers. The growing popularity of netbooks, those
smaller laptops that can easily fit in a briefcase or handbag and offer
basic computing tasks, such as web browsing, are the prime case in point.
Netbooks are cheap, and with new, high efficiency processors now on the
scene, they will likely get more powerful, and cheaper still. So while unit
volume is improving for tech companies, the actual revenue they bring in
continues to decline. Sales data from the market research firm NPD shows that
in the U.S. technology unit sales were up 10% in May on a year over year
basis. However, revenues declined 11% over the same time period. “Most of
the unit growth is fueled by netbooks,” observed analysts at Bank of
America/Merrill Lynch in a recent report.
Of course, the other growth engine for tech is handheld devices, and none is
more exciting these days than Apple’s iPhone 3GS; the company reports
selling more than a million in the first three days since the product’s
introduction. “Customers are voting and Apple is winning,” CEO Steve Jobs
was quoted saying in an Apple press release. It is the first time Jobs has
spoken for the company since he went on medical leave in January. Such
strength will help offset weakness in Apple’s computer business — sales of its
computers were still declining on a year—over—year basis in May — until the
recovery takes hold.
See TIME’s pictures of the week.
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