The Un-Dead PC

by: Russ Fischer

According to the Intel (NASDAQ:INTC) third quarter earnings report release on October 16, PC client unit sales were up 1% sequentially while client revenue was down 1%. In the Q&A this imperceptible difference from the second quarter was caused by a slight decrease in ASP (Average Selling Price.) PC sales were flat at 80 million units.

According to the Apple (NASDAQ:AAPL) fourth quarter earnings report release on October 25, Mac PC unit sales were up 18.3% sequentially.

In these same Apple reports iPads were down sequentially from 17 million units in the third quarter to 14 million units in the fourth quarter, a decrease of 17.6%.

Now for some comments on the macro environment and the peculiar PC specific environment:

The European Union is in total fiscal disarray. It's not just Greece, the very survival of the Union is in question from day to day. European companies and individuals are doing nothing in the way of spending for PCs and nearly everything else until this uncertainty is at least reduced.

The U.S. is threatened with the fiscal cliff, an enormous risk to the fragile economic recovery. Congress can't even begin to tackle the fiscal cliff problem until they re-convene after the election. While I personally expect the problem will get solved, a congress with a 10% approval rating is capable of anything. Consequently, companies are not hiring or spending on anything, including computer equipment.

The upcoming election is one of the closest and most contentious elections in history. Again, companies and individuals are doing nothing until the uncertainty of tax policy for the next four years is resolved.

In the PC specific environment, we have a three day old release of what might be the most significant upgrade to Microsoft (NASDAQ:MSFT) Windows since Windows itself replaced DOS. Windows 8 now has touch and real usable voice recognition capability enabling some truly innovative PC hardware. Certainly companies and individuals have pushed out their computer upgrades to see what this means.

Intel has upped the ante with CPU chips with a dramatic improvement in graphics performance and lower power requirements. The Ultrabook initiative has not been fully embraced by industry leaders Hewlett Packard (NYSE:HPQ) and Dell (DELL). These two leading US PC OEMs have moved PCs down their priority list to the point that Lenovo has taken over first place in worldwide PC sales from HP. Between an unprecedented update in software and hardware, consumers, both individuals and companies, can hardly be faulted for delaying computer purchases.

With all these headwinds to the PC business it is hard to believe that unit sales aren't down multiple tens of percent.

Instead WinTel PCs are flat to up 1% sequentially, Apple Mac PCs are up 18.3% while iPad unit sales are down 17.6% sequentially.

That certainly doesn't sound like the PC is dead and the displacement by tablet computers could be in question.

The PC specific impediments should be resolved as soon as the next 30 days, while the macro economic issues hopefully get resolved by the first of the year.

The Fed and the government are stimulating as hard as they can. When the multiple uncertainties are resolved, one way or the other, we could have a much more robust recovery and explosive PC sales from pent-up demand.

I like Intel for the un-dead PC business and I like Micron (NASDAQ:MU) for the flash memory that will make up the solid state drives in most of the new format PCs.

Disclosure: I am long INTC, MU. 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.