Who is still buying a PC?

Latest update time：2023-03-25

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Original by Ranciyuan (ID:chaintruth)

Author丨Ma Zhigang

Editor丨Cao Yang

The spring of the PC market does not come with the arrival of the beginning of spring.

Morgan Stanley mentioned in its latest PC market forecast for 2023 that " the entire PC market has fallen to its lowest point in 20 years ."

Statistics from market research institutions also confirm this prediction.

Gartner data shows that in the fourth quarter of 2022, global PC shipments totaled 65.3 million units, a year-on-year plunge of 28.5%, the largest quarterly decline since the mid-1990s.

And when the ceiling of a certain business field is pushed down, or even reaches the darkest moment in history, the giant companies in the industry are the ones who suffer the most head-on blow.

Gartner statistics show that in the fourth quarter of 2022, the shipments of Lenovo, HP, Dell, Apple, and Asus, the top five global market share manufacturers, fell sharply across the board, with declines reaching 28.6%, 29.1%, 37.0%, 10.2%, and 19.8% respectively. .

The performance of major PC giant manufacturers can also more intuitively reflect the current situation of the weak PC consumer market.

Taking Lenovo , which ranks first in global PC market share, as an example. Lenovo’s financial report released on February 17 shows that in the third quarter of fiscal year 2023 as of the end of 2022 ( the three months ending on December 31, 2022 ), the Group’s total Revenue and net profit were recorded at US$15.3 billion and US$437 million respectively, down 24% and 32% year-on-year. This marked the end of Lenovo's 10 consecutive quarters of net profit growth.

Among Lenovo's three major business segments, the Intelligent Device Business Group ( IDG ), which accounts for nearly 76% of revenue, has experienced significant fluctuations. Current revenue decreased by 34% year-on-year, and operating profit decreased by 37%, which was the main reason for dragging down the overall performance. Among them, the PC business is undoubtedly the fundamentals of this sector and even the entire group, accounting for approximately 60% of Lenovo's total revenue.

During the earnings conference call, Lenovo CEO Yang Yuanqing admitted, “The smart device market is now in its worst period.”

In response to the recession brought about by the downturn in its pillar business, Lenovo has taken measures to cut jobs and reduce costs. Yang Yuanqing said on the conference call that "the company will need to adjust its workforce to reduce expenditures on some businesses." However, he did not disclose the specific scale of layoffs and positions.

In fact, the other two PC giants HP and Dell, which are among the top three in the world, also launched large-scale layoffs in November last year and February this year under heavy pressure from performance, with the scale of layoffs reaching around 6,000 people each.

In addition to layoffs, which are almost a solution to the problem, as the PC industry returns to the stock market and the growth prospects are dim, how to find a second growth engine is a top priority for all PC manufacturers.

PC business "collapse"

Both revenue and net profit fell sharply, and PC shipments dropped by nearly 30%. However, Lenovo was not the only one to suffer performance "Waterloo". HP and Dell, both PC giants, were not spared.

The financial report shows that in 2022, HP's net revenue will be US$63 billion, a year-on-year decrease of 0.8%; net profit will be US$3.2 billion, a year-on-year decrease of 51%. In the fourth quarter, net revenue was US$14.8 billion, down 11.2% year-on-year; net loss was US$2 million, while net profit in the same period last year was US$3.1 billion, turning from profit to loss year-on-year.

At the same time as this terrible "report card" was released, HP launched a new round of layoffs plan, "to lay off 4,000-6,000 people in the next three years, accounting for about 10% of the total number of employees."

Dell's operations are exactly the same as HP's.

On February 6, Dell announced that it would cut approximately 6,650 jobs, accounting for 5% of its global workforce, in response to the sharp decline in PC demand. A more pessimistic signal comes from the company's management. Dell co-chief operating officer Jeff Clark wrote in an internal open letter, "The global PC market continues to deteriorate, and the future is highly uncertain. The company is experiencing a market environment of 'continuous erosion and uncertain prospects.'"

Needless to say, the reason for Dell's large-scale layoffs is also the company's bleak operating status. The financial report shows that in the third quarter of fiscal year 2023 as of the end of 2022 ( that is, the three months ending on October 28, 2022 ), Dell's total revenue was US$24.7 billion, a year-on-year decrease of 6%; net profit was only US$241 million. A year-on-year plunge of 94%.

Talking about the reasons why the PC market suddenly fell into a downturn, Yang Yuanqing explained at Lenovo's third quarter results conference call on February 17, "The current downward trend in the PC market was caused by the past three years."

Looking back, the PC industry is one of the few technology fields that has enjoyed the “epidemic dividend”. The epidemic has amplified people's demand for remote working and online entertainment, causing PC shipments to surge during the epidemic. IDC data shows that for the whole year of 2021, total PC shipments reached 349 million units, a year-on-year increase of 14.8%, setting a new high in annual shipments in the PC market since 2012.

However, some PC dealers are not aware of the so-called "epidemic dividend". Zhang Qi, head of HP dealers, told Ranciyuan that although from the data, home and online classes have indeed brought about an increase in PC sales, as a dealer, I don’t have a deep feeling about this, “From 2019 to now , as a single dealer, HP’s sales continue to decline.”

Regarding the current situation of this market, IDC predicts that the current situation of the PC market will not improve significantly this year, and the decline in shipments will continue until 2024. However, Lenovo's expectations are relatively optimistic. Yang Yuanqing said on the day the latest financial report was released, "We expect that the real demand in the PC market will be flat in 2023, which is 5% to 8% higher than before the epidemic."

However, in order to realize this relatively optimistic expectation and digest the backlog of PC inventory, Lenovo needs to urgently solve the problem. Due to the sharp drop in shipment demand, Lenovo's PC product channel has excess inventory. As Yang Yuanqing said, "Lenovo needs 1-2 quarters to digest these inventories, so the full-year shipments will continue to be 5% lower than the previous year." %.”

High inventory may have become a common phenomenon in the industry, which has further exacerbated the challenges faced by PC manufacturers.

Chen Shuxin, assistant research director of IDC China, told Ranciyuan that from a global perspective, inventory is still high, but the differences between different countries will be relatively large. The overall inventory situation in China's PC market is gradually improving, but in the short term, the overall market inventory is still large and will take some time to adjust.

"Moore's Law"

PC, a product that has been around for decades and once became the "darling" of the technology industry, is facing the fate of being replaced.

In fact, even before the COVID-19 epidemic, global PC shipments had been declining for many years. Discussions about the cessation of PC growth, industry stagnation, and market decline have become commonplace topics in the industry.

Looking back at the development of the PC market, 2001-2011 was a decade of rapid development and widespread popularity of global PCs. The global PC market is growing strongly, with annual shipments rising steadily, jumping from 120 million units to 365 million units.

The rapid growth momentum ended in 2012. Garter data shows that global PC shipments decreased by 1.2% in 2012 and continued to decline in the following seven years. Shipments in 2018 were only 259.6 million units. It was not until the end of 2019 that the sudden outbreak of the "black swan" epidemic greatly changed people's lives. The rise of home working, distance learning, and online entertainment gave the PC market the opportunity to gradually pick up and regain its upward momentum.

Figure/Global PC shipment statistics from 2000 to 2019

Source/Garter, Essence Securities Research Center

But the good times did not last long, and the rebound trend ended quickly as the epidemic subsided. It was just the demand for overdraft that made the recession more severe than everyone expected. Gartner reports show that in the third quarter of 2022, global PC shipments fell by nearly 20% year-on-year, which is the largest decline since tracking this data in the mid-1990s. But in the fourth quarter of 2022, the year-on-year decrease of 28.5% quickly broke the record set in the previous quarter.

“手机功能的不断强大，移动互联网应用越来越普及，使得消费者对PC的需求正显著降低。”对于PC市场的萎靡，广科管理咨询首席策略师沈萌分析道，iPad的那句广告语，“你的下一台电脑，何必是电脑”或可以很生动的说明这一现象。

In addition to the emergence of more innovative alternatives, the demand for PCs also has obvious cyclical characteristics. "The replacement cycle is lengthened" and "not replacing unless necessary" have become a common consumption habit of most PC users today.

“My first laptop was bought for me by my father after I entered college in 2015. The Intel i5 processor accompanied me through four years of college and my first year of work. Although the computer would freeze from time to time while working. But on the one hand, I didn’t have much money at the time, and on the other hand, I really felt that there was no need to replace it, so after replacing the solid state drive, I continued to use it for a long time,” Xiaoyou told Ran Ciyuan, Later, this laptop was seriously worn out and heavy, so I replaced it with a MacBook Air.

In addition, according to Moore's Law that the industry originally followed, product performance will double or the price will drop by half every 18-24 months. But this iron law has now failed - the performance of new products has been improved like "squeezing out toothpaste", but the price is getting higher and higher. In September last year, Nvidia founder and CEO Jensen Huang even publicly declared that "achieving twice the performance expectations at similar costs has become a thing of the past for the chip industry, and 'Moore's Law' is dead."

Xiao Yang, a game "enthusiast" who loves AAA masterpieces, told Ranciyuan that in the past two years, various reasons have caused the prices of computer hardware such as graphics cards to be inflated. Many game laptops have a very serious premium. For example, Lenovo's laptops such as the Savior are still selling at high prices today. It is still higher than the initial price two and a half years ago. "I have also been forced to become a 'wait and wait party' who holds the currency and waits and sees."

Xiao Yang further said that the computer he bought a few years ago with a 20-series graphics card was no longer suitable for large-scale stand-alone games. "I simply switched to the console camp and bought a Sony PS 5."

In this regard, Internet analyst Ding Daoshi analyzed that judging from the market conditions of the PC market and even the entire consumer electronics market in recent years, land costs, labor costs, and component costs have all increased, and product prices have been unable to come down. Links that can reduce costs may just optimize automated manufacturing and production, as well as the upgrade of related management systems. Therefore, PC prices will rise further in the future. Although it is not friendly to consumers, it is a big trend.

In addition, market penetration is also a difficult problem for global PC manufacturers to overcome.

The Chinese Academy of Social Sciences pointed out in the report "Promoting Smart PCs and Promoting High-Quality Economic Development" that the PC penetration rate in Europe and the United States has reached more than 90%, while the PC penetration rate in my country is still between 21-25%. On the one hand, the penetration rate of the European and American PC markets has hit the ceiling. On the other hand, it is not easy to tap our country's remaining market potential.

Ai Li, a senior practitioner in the PC industry, told Ranciyuan that as far as China’s employment situation is concerned, the proportion of people who need to use computers is not that high among the huge population base. Employees in the financial industry, civil service, government, and the Internet are among the huge population. For service industry practitioners, the proportion is less than 10%. As an entertainment tool, PC is facing the squeeze of mobile devices, and the proportion of real hard-core players is not high. Therefore, compared with European and American countries, China's PC penetration rate is not so easy to increase.

Where will the "Big Three" break up?

There is no hope of growth and unclear prospects. For the entire PC industry, in addition to guarding the basics of the main business and preventing the invasion and "stealing" by disruptors such as Xiaomi and Huawei, how to seek transformation or diversified development has become a major task for PC manufacturers. consensus before us.

On the road to diversified transformation, the giants took action much earlier than the outside world saw. But the future is rough and the environment is dangerous, and many people will die on the way.

As a pioneer in the PC industry, HP was once the world's largest personal computer manufacturer. As the PC business declined, HP split its business segments into two independent listed companies, namely Hewlett-Packard Company and Hewlett-Packard Enterprise. The former is mainly engaged in PC and printer business, while the latter is engaged in cloud computing and other businesses.

However, even though HP's printer business has occupied the world's largest market share, HP has not achieved great results in broadening its business boundaries over the years. Due to the over-concentration of business, which has brought huge operational risks, it has also become the first company among the "three giants" of PC to lay off employees. You know, three years ago, HP had laid off 9,000 people.

Different from HP, in recent years, Lenovo, Dell and other manufacturers have been drastically adjusting their business composition, extending their tentacles to other high-profit business markets, seeking new growth poles in addition to the main business, making up for the decline in the PC business, and even Release the signal of "de-PC".

Dell's main direction is to transform into the enterprise IT market. In recent years, Dell has successively acquired dozens of enterprise software and service companies, and has even become the dominant player in the field of enterprise data storage through acquisitions, with a market share of more than 35%. Dell's fiscal 2023 third quarter financial report shows that in addition to the Client Solutions Group ( CSG ), which includes PC sales , the Infrastructure Solutions Group ( ISG ) revenue hit a record high, reaching $9.6 billion, a year-on-year increase of 12 %.

Lenovo has taken a more diversified path. As a typical business expansion enterprise, Lenovo makes full use of financial tools to go global, especially its mergers and acquisitions of IBM and Motorola, which are enough to become typical cases in the business world. In 2019, Yang Yuanqing proposed the "3S strategy", namely smart products, smart infrastructure and smart services. The three major businesses thus formed carry Lenovo's ambition to explore imagination beyond PCs.

Judging from the financial report, the results of Lenovo's diversified transformation have already appeared. In this performance report, Lenovo’s non-PC business revenue accounted for more than 40% for the first time. The two major business groups besides the Intelligent Equipment Business Group ( IDG ), the Infrastructure Solutions Business Group (ISG) and the Solution Services Business Group ( SSG ), generated revenue of 20.3 billion yuan and 13.1 billion yuan respectively, achieving year-on-year growth rates of 48% and 22.6%. increase.

Picture source/Visual China

In addition, during the earnings conference call, Yang Yuanqing also talked about ChatGPT, which is currently very popular and has caused a huge shock in the technology industry. "Large-scale, ultra-deep artificial intelligence models require a large amount of data and computing power to train and run. High-performance servers, data centers built with high-performance servers, and cloud data centers are essential, which will boost Lenovo's related businesses. "

In this regard, Ding Daoshi analyzed that after Lenovo realized that the growth of the PC market was limited, its transformation idea was to integrate software, hardware, and services to make To B money. In the Internet industry in the United States, To B and To C industries each account for half, while in China, the To C market currently accounts for 70% to 80%, which means that there is a trillion-dollar To B market increment. "Lenovo has experience in dealing with governments, institutions, and enterprises in the PC business, and may be able to make efforts in this direction."

But not everyone is optimistic about the transformation of major PC manufacturers. Yao Liwei, senior editor of Zhongguancun Online, told Ranciyuan, "Even if the current major PC manufacturers transform, they may not have a qualitative change in revenue. Generally speaking, PCs will continue to be in a market that is close to saturation. Under this circumstance, PC Large manufacturers can only maintain their own market share as much as possible, or slowly erode the market share of their competitors.”

"Of course, if you want to achieve the same rapid growth as before, you can only wait for the next trend and seize it, but this will be a difficult task for many established PC manufacturers who have the disease of big companies." Yao Liwei said frankly.

*The title picture and some of the accompanying pictures are from Visual China.

*Xiaoyou and Xiaoyang are pseudonyms in the article.

*Disclaimer: The information or opinions expressed in this article do not constitute investment advice to anyone under any circumstances.

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