Systems and PC hardware

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Market analysis

Worldwide PC shipments totaled 68.4 million units in the second quarter of 2015, a 9.5% decline from the second quarter of 2014. This was the steepest PC shipment decline since the third quarter of 2013. PC shipments are projected to decline 4.4% in 2015. Sharp appreciation of the US dollar contributed to the decline due to increases in PC pricing. The Windows 10 launch scheduled for Q3 2015 has created self-regulated inventory control. PC vendors and other sales channels tried clearing inventory as much as possible before the Windows 10 launch.

Reflecting the market decline, Systems and PC hardware companies performed relatively poorly in Q2 2015 with all the companies under the scope of study reporting a quarter-over-quarter drop in revenue. On a year-over-year basis, EMC Corp and Lenovo were the only companies under study which posted growth in revenue. Year over year net income also fell across the entire group with Xerox and Lenovo posting double-digit declines of 95.5% and 51.6%, respectively.

Lenovo maintained the top position in worldwide PC shipments in the second quarter of 2015, but the company suffered a year-over-year shipment decline for the first time since Q2 2013. EMEA, Latin America and Japan were tough regions for Lenovo, as the company experienced double-digit shipment declines. HP also experienced a shipment decline after five consecutive quarters of PC shipment growth. HP showed a steep decline in EMEA due to currency impact fluctuations.1

Worldwide combined shipments of devices (PCs, tablets, ultra-mobiles and mobile phones) are expected to reach 2.5 billion units in 2015, a 1.5% increase from 2014 but down from the previous quarter's forecast of 2.8% growth.2

According to the Worldwide Quarterly Large Format Printer Tracker, large format printer (LFP) shipments increased by 1.3% from the second quarter of 2014 to the second quarter of 2015, while revenue was flat. The second quarter is often the slowest quarter of the calendar year for wide format printer shipments overall, but shipments are still ahead of pace in 2015 versus 2014. The market in North America was very strong in Q2, which offset declines in the EMEA region.3

Display graphics printer shipments also grew about 2% year over year on a worldwide basis in Q2 15, with the fulfillment of some large deals across printer networks fueling growth.3

Lenovo’s quarterly revenue was US$10.7bn, a 3%  increase year over year, but net income declined 52% to US$102mn. Lenovo saw severe challenges in its main markets. It faced significant declines in the global PC and tablet markets, as well as slowing growth and increasing competition—especially in China—in smartphones.

Lenovo has also started restructuring its Mobile Business Group (MBG) to align smartphone development, production and manufacturing and better leverage the complementary strengths of Lenovo and Motorola. There will be a simpler, more streamlined product portfolio with fewer, more clearly-differentiated models. MBG will continue to drive the overall mobile business, but will now rely on Motorola to design, develop and manufacture smartphone products. These actions will include a reduction of 3,200 people in the non-manufacturing workforce around the world. The Company’s gross profit for the first fiscal quarter increased 22% year over year to US$1.6bn, with gross margin at 15.4%. Operating profit for the quarter declined 67% year over year to US$96mn.

EMC Corp’s Q2 2015  revenue was US$6bn, up 2% year over year. Revenue was adversely impacted by a VMware settlement with the Department of Justice (DOJ) and the General Services Administration (GSA), which was entered into and paid in cash by VMware in the second quarter. Earnings per share was $0.25, down 11% year over year. EMC has repurchased approximately US$2bn worth of its common stock so far this year and returned US$225mn to shareholders in the second quarter via a quarterly dividend. EMC Information Infrastructure revenue was up 1% year over year and Emerging Storage revenue rose 49% year over year.  

1Gartner, Jul 2015, Jul 2015

3IDC, Aug 2015