Slumping PC Sales Ripple Through Tech Industry

The slowing consumer sales that are hitting HP, Dell and other OEMs are being felt farther down the line, from chip maker AMD to chip equipment vendor Applied Materials.

Consumers are continuing to hold back on buying PCs€”either waiting for the arrival of Windows 8 devices or spending their money instead on tablets and smartphones€”a trend that is having a ripple effect through parts of the tech industry.

Those most immediately impacted are the PC makers themselves, who saw continued contraction in the market in the second quarter, according to market research firms IDC and Gartner. Hewlett-Packard and Dell in particular were hit hard, with both seeing double-digit percentage declines in units shipped, while Lenovo, Acer and Asus fared better.

However, the affect also has been felt by chip maker Advanced Micro Devices, which on July 9 announced preliminary second-quarter financial results that showed revenues decreasing by as much as 9 percent over the same period last year€”and after the company€™s initial forecast showed a 3 percent revenue increase. AMD officials cited continued weakness in the consumer market as a key reason for the revised revenue numbers.

AMD is scheduled to announce official results July 19, two days after rival Intel unveils its second-quarter financial earnings. Some analysts have speculated that Intel, which has been working hard over the past couple of years to expand its portfolio beyond PC and server chips, could feel some impact of the slowing consumer PC market.

A day after AMD€™s announcement, officials with chip equipment maker Applied Materials said the company would not meet its full-year revenue target of $9.1 billion to $9.5 billion, due in large part to demand from chip foundry customers that was weaker than expected.

Vendors are still selling PCs€”according to Gartner analysts, in the second quarter, 87.5 million units were sold worldwide. But the slowdown in consumer sales in particular, combined with the uncertain global economic outlook, will make for some more difficult times ahead in the PC industry, at least through the next two quarters, when sales of systems with Microsoft€™s Windows 8 should help stem the bleeding.

€œConsumers are less interested in spending on PCs as there are other technology product and services, such as the latest smartphones and media tablets that they are purchasing. This is more of a trend in the mature market as PCs are highly saturated in these markets,€ Mikako Kitagawa, principal analyst at Gartner, said in a statement.

David Daoud, research director for personal computing at IDC, said the troubles besetting the PC industry are numerous, particularly in the United States.

"The U.S. market suffered a double-digit contraction in the second quarter as market saturation and economic factors combine with anticipation of Windows 8 and other changes later in the year,€ Daoud said in a statement. €œIn this context, consumers are delaying purchases, and vendors and retailers are slowing down their PC activities to clear existing inventories. The situation is exacerbated by consumer notebook saturation, a slowing replacement cycle in the commercial sector, and the big macro-economic and political events affecting confidence and spending.€

Even with the release of Windows 8 sometime in October, IDC analysts don€™t expect it to boost PC sales to any great degree until at least the fourth quarter.

And it could take a while for Ultrabooks to give any sort of boost to the numbers, the analysts said. Intel first introduced the idea of the ultra-thin and light notebooks, which are designed to combine the productivity capabilities of traditional laptop with features found in tablets, including instant-on, constant connection, long battery life and touch screens.

About two dozen Ultrabooks have been released, most of which are based on Intel€™s previous generation of €œSandy Bridge€ Core processors. However, Intel earlier this year began releasing the next-generation chips, the 22-nanometer €œIvy Bridge€ chips, which offer greater performance and energy efficiency than the Sandy Bridge architecture. Intel officials have said they expect more than 100 Ultrabooks based on Ivy Bridge chips to hit the market this year.

But Ultrabooks still face deep challenges€”not only the wait for Windows 8, but also pricing that for most systems, have yet to get much under $800. Intel has put a lot of effort and money behind the Ultrabook push€”including a $300 million fund to help companies that are making software and hardware for the form factor and a massive and expensive advertising and marketing campaign.

The Ultrabook effort, by both Intel and OEMs, has taken some of the attention away from PCs, and as yet, the payback has been minimal, according to Gartner€™s Kitagawa.

€œA big portion of R&D spending has been allocated to Ultrabook development, together with Intel€™s massive investments to establish the market segment,€ she said. €œThough Ultrabook was at first introduced in the market in 2011, the major promotion kicked off toward the end of 2Q12 with the IvyBridge, based Ultrabook release. This segment is still in an early adopter€™s stage.€

The PC OEMs would use any help they could get. Overall, both Garner and IDC saw a 0.1 percent decline in the numbers of PCs shipped in the second quarter over the same period last year. HP, the longtime worldwide leader in the PC market, saw the number of its shipments drop more than 12 percent, while Dell saw its numbers fall between 11.5 percent and 11.9 percent, according to Gartner and IDC, respectively.

Both analyst firms had Lenovo and Asus seeing strong gains in shipments, while Acer had smaller growth.