Systems and PC hardware

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Market analysis

The Systems and PC Hardware sector performed poorly in Q1 2016, with an average revenue decline of 21% year on year and 16% sequentially. The sharpest decline in revenue was from HP, which declined 57% year over year to US$11.6 billion. In terms of net income it was a mixed result, with three out of the five companies reporting a decline year over year.

Worldwide PC shipments totaled 64.8 million units in Q1 2016, a 9.6% decline year over year. Q1 2016 was the sixth consecutive quarter of PC shipment declines, and the first time since 2007 that shipment volume fell below 65 million units. The deterioration of local currencies against the US dollar exacerbated already declining sales. All major regions showed year-over-year PC shipment declines, with Latin America showing the largest drop of 32.4%. The Latin American PC market was primarily impacted by Brazil, where the problematic economy and political instability adversely affected the market. Lower oil prices also negatively impacted PC demand in Latin America and Russia. The ongoing decline in US PC shipments—shipment volume was the lowest in three years—confirmed that the installed base is still declining. PCs are not being adopted in new households at the same ratio as in the past, especially in emerging markets. In these markets, smartphones are now the first choice.1

Lenovo maintained the top position in worldwide PC shipments in Q1 2016 despite a 7.2% decline in shipments. Lenovo experienced a shipment decline in all regions except North America, where the company's PC units increased 14.6% year over year.1 Lenovo’s continued success is attributable to their complete line of products—from mobile devices through to the data center. Lenovo’s foresight to acquire both the Motorola phone business from Google and the x86 server business and ThinkPad line of notebook computers from IBM has helped the company to act as an IT partner to customers.2

To generate increased demand, PCs will need to deliver in areas that smartphones and tablets cannot, with larger screens, ergonomic keyboards, greater storage and more powerful computer processors. With an oversaturated market and falling average selling prices, PC vendors must focus on optimizing profitability to sustain growth.2

In company news, EMC shareholders are receiving a portion of their Dell deal payout in the form of VMware stock. EMC has reported gains as VMware share prices increased 13.6% due to better than-expected Q1 2016 revenue and news of a US$1.2 billion buyback.

EMC’s Information Storage revenue dropped 6% year over year to US$3.45 billion. Within the segment, product revenue fell by 10% to US$1.96 billion, while services revenue rose marginally to US$1.49 billion. EMC sales were negatively impacted by a higher-than-expected build-up in unshipped storage product orders of approximately US$75 million.


1. Gartner, April, 2016
2., Jan 2016
3., Oct 2015