Explaining The Worldwide PC Slump

by: George Kesarios


Most people's computational needs are restricted to using social networks these days.

A 5 inch smartphone or a tablet offer a better social experience than PCs.

As a result, expect PC sales to continue to decline for several more years.

If and when Apple comes out with a 5 inch iPhone, expect sales to explode to the upside.

We all know that PC sales are shrinking on a year-over-year basis for a while now. But what we don't know is how long this slump might last. Well according to IDC, not only did PC shipments fall by 9.8% in 2013, but the consulting firm is forecasting that the slump will continue all the way to 2018!

Let me tell you a short story to explain what is happening, because to be honest, I didn't think this slump would last very long nor that it would be able to threaten the PC industry.

I have three PCs and one MacBook Air in my house. Until about a year ago, my wife and 3 kids were on PCs all day. Not anymore. Let me explain why.

Several months ago I bought my wife a 5 inch smartphone. While her previous phone was also a smartphone, it had a small screen and you could not really do much with it. Sure you could use Facebook (NASDAQ:FB) on it, but you are not comfortable doing so.

Now with her 5 inch phone, she is with it all day (literally). She logs into Facebook on her smartphone and takes it wherever she goes (on the couch, in the kitchen, etc.). Sometimes she's on Skype all day talking with friends from all over the world, while at the same time doing other things. She could not do that on her PC.

Then another strange thing happened. My youngest kid (9 years old) stopped playing games on his PC. Now when he comes home from school, he will take his mother's smartphone and play games on that instead. So now he sits in the living room playing a game on her smartphone and watches cartoons at the same time. He could not do that on the desktop PC.

I also bought a 5 inch smartphone for my daughter and now she too refuses to touch her PC (for different reasons). She doesn't want anyone seeing what she types on Facebook, so she is able to text with friends, not worrying about her older brother spying on what she says to her friends. In addition, she has it next to her when she studies and keeps an eye on the social action. She could not do that with a PC.

Suddenly it hit me. With the exception of myself, my entire family uses a computer to socialize, text, chat and communicate with friends. The only reason they use to do it on the PC is because that was the only medium years ago. Now that they have another medium on which to socialize on, the PC is no longer a necessity.

Obviously Intel (NASDAQ:INTC) has been the most affected and will probably continue to experience sluggish sales because of this new trend. Intel needs to gain traction in the devices space soon to be able to make up for lost PC sales. And until that happens, I reiterate my recommendation for Intel, which is that it will not do much, and is a good swing trade stock with very little risk (if you miss a trade don't worry, eventually you will get your money back).

Apple (NASDAQ:AAPL) does not seem to be affected by all this. Not only is Apple a smartphone powerhouse, its PC sales were up last year. And from the looks of it, it will probably gain in PC market share. Apple has a very balanced business between desktop sales and smartphones, and contrary to Intel, it has traction in both sides of the business.

And judging from my personal family experience that I described above, I think Donald Trump is right. Apple needs to put out a 5 inch phone. And when it does, I think Samsung's (OTC:SSNLF) market share in the U.S. will nose dive. One of the reasons many people buy a Samsung today is because Apple does not offer a 5 inch device.

My first computer (which I still have as an ornament in my office) was a Mac Plus back in 1986. After moving to Europe, I have been using PCs ever since. But last year I decided to buy a MacBook Air, and as a result, I doubt if I will ever go back to the PC again.

Microsoft (NASDAQ:MSFT) is in a double jam. Not only are PC sales affecting its Windows 8.1 sales, but it has not been gaining much traction in the smart devices space either. Hopefully the Nokia (NYSE:NOK) acquisition will help the company in the longer term, but it is doubtful if WP8 ever reaches critical mass the likes of Apple or Google's (NASDAQ:GOOG) Android ever. Early bird gets the worm.

Advanced Micro Devices (NYSE:AMD) is in a better position to grow than Intel at the moment. While it is also confronted by PC slump headwinds, AMD has at least branched out in the game console space and has a pretty good graphics card franchise. In fact, AMD is one of my top picks for 2014. There are more ways to skin a cat (as the saying goes) and AMD has done just that.

Bottom line

PC sales will continue to decline, and tablets and smartphones will be used more and more. Especially in developing countries, where purchasing power is not the same as the U.S., and people will prioritize their computing purchases. And since most people use computers to socialize these days, tablets and smartphones are just as good, if not better at the job than desktop PCs.

And for all those who say that a 5 inch iPhone will not sell, I say it will be a smash hit, and we will all be surprised by how many people will buy it just because of its size.

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.