Are PC sales bottoming?
This article will discuss what the just released Gartner Q3 2013 PC shipments numbers mean for the prospects of the duopoly PC semiconductor suppliers, Advanced Micro Devices (NYSE:AMD) and Intel (NASDAQ:INTC).
While the headlines tout a global 8.6% decline year-over-year, Gartner also notes that:
"In the U.S. market, PC shipments totaled 16.1 million units in the third quarter of 2013, a 3.5 percent increase from the same period last year, registering the second consecutive quarter of shipment growth after six quarters of decline (see Table 2). Low inventory from the first half of 2013, and the introduction of new models with Intel's Haswell and new form factors brought the sell-in shipment up compared with a year ago."
Additionally, global Q3 PC sales were 6.14% higher than Q2 2013 sales.
US is the technology leader and trendsetter
The US is not only world's largest single consumer of technology products, but is also considered a trendsetter. Therefore, the slight uptick in US PC sales is worth noting as a clue to the future of global PC shipments.
The US entered the great recession before other countries, and has emerged in better shape than most of the developed world economies. While the US economy is not roaring, it is generally healthier than most of the rest of the world.
Both of the above economic facts related to PC sales, implies that the rest of the world should follow the US lead in relation to future PC sales.
The competition from Tablets is improving PC innovation
A significant portion of the PC sales drought is because consumers and businesses saw no reason to upgrade.
The continual price reductions in PCs combined with significantly longer laptop battery life appears to finally be resulting in a mini upgrade cycle, starting in the US.
PC chip business is a Duopoly
While Intel has been continually profitable from its dominant position as the main supplier of PC chips, AMD's transformation into a fabless supplier should produce future profitability. As outlined in the Seeking Alpha article, there is no further economic reason for Intel to engage in brutal PC chip competition with AMD.
Since there is no real growth left in the PC business, Intel will most likely conduct future PC chip competition along the same lines as other Duopolies. As in other similar duopoly situations, Intel will seek to maximize profitability, which generally implies avoiding brutal price competition with AMD.
Therefore, Intel, and especially AMD, should see their PC chip businesses increase profitability in future quarters.
I say especially AMD because most people no longer see much upside in purchasing a more powerful CPU, which is Intel's advantage over AMD. The advent of smartphones and tablets has shown people that they do not need "Intel inside;" whereas, most people still want better graphics/video capabilities, which plays directly into AMD's GPU wheelhouse. AMD has carved out a strong position in low cost PC chips. The destruction of the "Intel inside" mystique combined with the lack of demand for greater CPU power is a strong incentive for people to consider AMD chips as a better value, relative to price and required performance.
Priuses do not compete directly with Ford F-150s, while both are considered automobile sales
Tablets do not compete directly with PCs, even though most consumers consider both as internet access devices.
Tablets do not provide the functionality required for most businesses. A person may put off replacing a PC/laptop because they used money allocated for consumer electronics, to purchase a tablet.
But, if a person really requires the functionality of a PC/laptop, they will eventually be forced to replace their existing system.
There is good evidence that PC sales have hit a bottom in the US, and that the rest of the world will eventually follow.
Most Global Duopoly companies provide consistent profitability, and make good investments, when they can be purchased close to the low end of their long-term trading ranges.
That said, Intel offers a well-covered dividend, which is significantly better than holding cash. Therefore, I recommend to the risk adverse and income seeking investors, that they consider accumulating Intel on any weakness.
Disclosure: I am long AMD. 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.