Systems and PC hardware

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Market analysis

The Systems and PC Hardware subsector in Q3 2015 reported year-over-year revenue decline of 5.1%, led by IBM (-21%), Xerox (-18%) and HP (-7%). Gains posted by Lenovo (+17%) and EMC (+3%) were completely offset by the losses from IBM, Xerox and HP. 

On a quarter-over-quarter basis, the subsector revenues remained almost flat, with a minor growth of 0.6%. Growth posted by Lenovo (+13%), HP (+1%) and EMC (+1%) helped overcome losses posted by IBM (-7%) and Xerox (-6%). 

Worldwide PC shipments totaled 73.7 million units in Q3 2015, 8% lower compared to last year. Desktop PCs continued to show weakness, with a high single-digit decline, while the segment that combines notebook PCs and premium ultra-mobiles (such as the MacBook Air and Microsoft Surface Pro) recorded a low single-digit decline.1

PC prices rose about 10% in the last year, driven by the sharp appreciation of the US dollar against local currencies. In this quarter, this price increase was a major cause for lower demand. The impacted regions, which include EMEA, Japan and Latin America, posted double-digit declines in the third quarter.1

Windows 10 launched in Q3 2015, but did not have the desirable impact on demand that was hoped for. It is expected to garner some demand in the December quarter with holiday sales.1

Although the overall market continued to see double-digit declines, the top four PC vendors globally (Apple, Lenovo, Google, HP) performed much better than the rest of the market. Collectively, the top four vendors had a decline in shipments of 5% year over year. The advantages of scale, concentration on portable PCs, deeper penetration of distribution channels in emerging regions, as well as smaller vendors exiting the market all aided the largest vendors.2

The US reported shipments of 17.3 million units, down marginally year over year. HP retained its leadership position in the US followed by Dell, while Apple returned to the third spot. The EMEA region saw a double-digit decline as vendors continued to deplete Windows 8 stock in preparation for shipments of new products for the holiday season. Currency fluctuations and ongoing economic and political issues also had an adverse impact on EMEA results. Asia/Pacific also had lower demand due to currency impact on the region.2

Reflecting overall market trends, IBM’s third-quarter net income from continuing operations was US$3.0 billion, a drop of 14% compared to US$3.5 billion in Q3’14. Total revenues from continuing operations for the third quarter of 2015 of US$19.3 billion were down 14% (down 1%, adjusting for currency and the charges related to divested ‘System x’ business) from the third quarter of 2014.

In contrast, Lenovo reported revenue of US$12.2 billion in Q3 2015, a year-over-year growth of 17% and a quarter-over-quarter growth of 13%. However, the company incurred a net loss of US$714 million compared to net income of US$262 million in Q3 2014 and US$101.9 million in Q2 2015. This is largely because Lenovo executed its business realignment plan in Q3 2015 that resulted in restructuring costs of US$599 million and one-time charges of US$324 million, totaling US$923 million. The restructuring plan is expected to help the company better focus resources, sharpen its business model and efficiently capitalize on market opportunities in mobile, PC and enterprise.

HP posted Q3 2015 revenue of US$25.7 billion, a year-over-year decline of 7%, but a quarterover-quarter rise of 1.4%. The quarter marked the end of their fiscal year (October 31) as well as the last day for HP to report as a single company. Effective November 1, HP became two companies: HP Enterprise Company and HP Inc. Net income for the quarter stood at US$1.3 billion, a year-over-year decline of 1%, but a quarter-over-quarter jump of 55%. The sequential rise in net income is largely due to net tax benefits of US$803 million, which consisted of a separation related tax deduction, reversal of a previously recorded valuation allowance and write off of certain deferred taxes that will no longer provide any future benefits to HP Inc or Hewlett Packard Enterprise Company.

 

1. Gartner Nov 2015

2. IDC.com, Oct 2015