The personal computer (PC) market is facing hard times since the demand for tablet PCs and smartphones has increased. People have an inclination towards buying tablet PCs and smartphones because they are cheaper in price and easy to carry. These tablet PCs and smartphones can perform any task that a PC can do. Though the storage space is limited in tablet PCs as compared to desktop or laptop PCs, thanks to cloud computing and high speed Internet technology people can access their data with the help of their tablet PCs from anywhere in the world, regardless of time and location.
However, while tablet PCs and smartphones are making people's lives easier, on the other hand, they hurt the overall sales of PCs on the market. The most recent IDC Worldwide Quarterly PC Tracker report shows that the first quarter of 2013 was not as good for PC manufacturers as researchers thought it would be. In the first quarter of 2013, 76.29 million PCs were shipped as compared to 88.64 million PCs in the first quarter of 2012. That means PC shipments dropped by 13.9 percent compared to the first quarter of 2012, which is the largest drop for a single quarter in 20 years, while on a year-on-year basis the decline was negative 12.7 percent in the United States. (Note: IDC study doesn't include Windows tablets and tablet-laptop hybrids in personal computer.)
Researchers also blamed Windows 8 for the PC's sales drop, as it not only failed to provide a boost to the PC market, but also slowed the market growth. Windows 8, with its new look, drives its users to learn new ways to control their machines.
Microsoft (NASDAQ:MSFT) launched Windows 8 on October 26, 2012, with the hope to regain the PC market and drive some interest for tablet PCs. Though PC shipments were already dropping, IDC's latest report suggested that the decline was speeding up.
IDC Vice President Bob O'Donnell said in his statement that Windows 8 is designed to work well with touchscreen devices, but it came at the cost of PCs. The changes like touch capabilities, the radical changes to the user interface and removal of the familiar Start button, as well as high prices, have made PCs a less attractive alternative to tablets and other competitive devices. Microsoft will have to make some very tough decisions in the future if it wants to help strengthen the PC market.
About Hewlett-Packard (HPQ):
HPQ has been the world's leading PC manufacturer since 2007. The company saw a 23.7 percent drop in worldwide shipments in the first quarter of 2013 as compared with the same quarter last year. Shipment of HP computers in the United States dropped 22.9 percent from 4,632 units to 3,570 units in the first quarter of 2013. The drop in sales resulted due to the increasing appeal of tablets and smartphones versus PCs.
HP Earnings Report 2013:
The drop in the PC market is clearly shown in HP's first quarter report of 2013. The company posted that its revenues dropped by 6 percent to USD 28.4 billion from USD 30 billion. HP's personal systems revenues, which include revenues from notebooks, desktops and workstations, were down by 8 percent on a year-on-year basis. The company's commercial revenues declined by 4 percent, and consumer revenues declined by 13 percent in the first quarter of 2013. Total units were decreased by 5 percent with notebook units down by 10 percent on a quarter-on-quarter basis and 16 percent on a year-on-year basis, respectively.
The dropping of PC sales also affected HP's profit margins and EPS. For the first quarter, net earnings were USD 1.2 billion and were down by 16 percent from USD 1.5 billion year-over-year. First quarter EPS was USD 0.63, down from USD 0.73 in the previous year's corresponding period.
Currently, HP is in a tough position. The increasingly fierce competition in the tablet market and losing shares in the PC market is hurting its business a lot. Though HP has very strong assets to stabilize the business, it's earning power and competitive position is decreasing, which further leads to deteriorating growth. This is alarming for HP, also from an investment point of view, because growth is one of the basic factors that investors seek before investing in any company. In order to attract investors, HP needs to present its growth potential in the coming quarter, till then I give a bearish rating to this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.