Systems and PC hardware

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Market analysis

The Systems and PC Hardware sector had a relatively slow fourth quarter with four out of the five companies under study reporting declines in revenues on a year-on-year basis resulting in a 3.4% revenue decline compared to Q4 2015. On a sequential basis, excluding Dell Technologies, which has not yet reported their latest earnings, revenues grew by 1.9%. Year-over-year net income for the sector declined by 3.8%, with Lenovo and Xerox reporting the greatest declines of 64.3% and 32.1%, respectively.

PC shipments have declined annually since 2012. Stagnation in the PC market continued into the fourth quarter of 2016 as holiday sales were weak due to the fundamental change in PC buying behavior. PC shipments to the consumer market were driven by solid Black Friday sales in Western European countries, such as the UK and France, especially on traditional notebooks, ultramobile clamshells, the hybrid form factor and gaming PCs.1

Worldwide PC shipments totaled 72.6 million units in the Q4 2016, a 3.7% decline from Q4 2015. For the year, 2016 PC shipments totaled 269.7 million units, a 6.2% decline from 2015. The Asia/Pacific PC market totaled 24.8 million units in Q4 2016, a 3.9% decline from Q4 2015.1  PC shipments in EMEA surpassed 21.9 million units in Q4 2016, a 3.4% decline year over year. In the US, PC shipments totaled 16.5 million units in Q4 2016, a 1.3% decline from Q4 2015. Five of the top six vendors in the US PC market experienced a shipment increase in Q4 2016. However, this was offset by a 20.9% decline in the Others category, and a 48.3% decline in shipments by Asus.2

The broad PC market has been static as technology improvements have not been sufficient to drive real market growth. There have been innovative form factors like 2-in-1s and thin and light notebooks, as well as technology improvements, such as longer battery life. However, the market driven by PC enthusiasts is not big enough to drive overall market growth. Consumers who have high dependency on smartphones, stretch PC life cycles longer.

HP remained in the second position behind number one Lenovo, and has recorded three consecutive quarters of shipment growth. Dell also registered three consecutive quarters of shipment growth in Q4’16. Dell continued to place PCs as a strategic business segment in commercial and consumer markets during 2016. Asus suffered the steepest shipment declines in Q4’16.2

In other company news, on December 31, 2016, Xerox Corp completed the separation of its Business Process Outsourcing (BPO) business from its Document Technology and Document Outsourcing business. The separation was accomplished by moving the BPO business into a new legal entity, Conduent Incorporated, and then distributing one hundred percent (100%) of the outstanding common stock of Conduent to Xerox Corporation stockholders. Conduent is now an independent public company trading on the New York Stock Exchange. As a result of the separation and distribution, the BPO business has been presented as a discontinued operation and, as such, has been excluded from continuing operations and segment results for all periods presented. In connection with the separation, Xerox entered into several agreements with Conduent to (1) effect the legal and structural separation of Xerox and Conduent, (2) govern the relationship between Xerox and Conduent up to and after the completion of the separation and (3) allocate between Xerox and Conduent various assets, liabilities and obligations, including, among other things, employee benefits and tax-related assets and liabilities. Separation costs were US$159 million. During 2017, the company expects to incur additional separation costs of approximately US$15 million.

Hewlett Packard Enterprise (HPE) acquired machine-learning security technology startup, Niara, for an undisclosed amount. Niara has developed machine-learning technologies that can detect small changes in user behavior and other anomalies to automatically isolate and disconnect security threats internally or from external attack vectors. The company has developed a security analytics platform that applies machine-learning algorithms to data from security infrastructure to better detect attacks that have bypassed an enterprise's perimeter defenses. HPE's acquisition of Niara will add to its "Intelligent Edge" initiative.3

 

1. IDC, Feb 2017

2. Gartner, Jan 2017

3. Seekingalpha, Feb 2017