PCs have made a slow but steady recovery after more than two years of decline. Global PC shipments totaled 83.7 million units in Q4’14, a 1% increase from Q4’13. 1
Displacement of PCs by tablets peaked in 2013 and in the first half of 2014. However, tablets have now saturated key markets so consumer spending is slowly shifting back to PCs. The most popular products are mobile PCs, including regular, thin and light notebooks and 2-in-1 computers, or laptops with detachable screens. 1
While its overall growth rate slightly declined in PC shipments, HP was able to post single-digit growth to maintain the No. 2 position worldwide. HP was the No. 1 vendor in EMEA and the US. While HP announced its intention to split into two companies, the impact to the PC business operation should not be significant.1
Growth of PCs in the quarter has shown regional variation, with mature regions recording positive growth and emerging markets remaining weak. The US showed the highest growth in Q4’14. PC shipments in the US reached 18.1 million units in Q4’14, a 13.1% year-over-year increase and the highest growth seen in the US market in the last four years. HP showed the strongest year-over-year growth in shipments at 26.2% in Q4’14, and it accounted for 29.2% of all shipments in the US for the quarter. 1
There were 26.5 million PCs shipped in Europe, Middle East and Africa (EMEA) in Q4’14, a 2.8% year-over-year increase. PC growth in EMEA was driven by the holiday season in Western Europe with high sales of consumer notebooks. The low prices of these devices ensured that consumer spending shifted to notebooks and two-in-ones from tablets, but had a negative impact on average selling prices (ASPs) and vendor margins.1
The Asia-Pacific PC market also showed recovery, where PC shipments reached 26.6 million units in Q4’14. This is a 2% year-over-year increase for the quarter. The PC user base in Asia-Pacific is stabilizing and replacement demand is recovering in the mature markets. However, consumers in emerging markets, such as China and India, continue to be attracted to smartphones. They are more focused on content consumption or on specific tasks that can be easily performed by a smartphone. Coupled with limited disposable income, these buyers do not see the need to invest in PCs.1
Global tablet shipments in 2014 recorded 4.4% growth, from 207 million units in 2013 to 216 million units in 2014.1, 2 This is in sharp contrast to the previous year, when tablet shipments grew by 53.4%, from 120 million units in 2012 to 207 million units in 2013.2, 3 The steep decline can be explained by a long refresh cycle. Lack of innovation in tablet hardware has led to consumers holding on to their tablets and spending money on phone upgrades.1
The tablet market is still very top heavy in the sense that it relies mostly on Apple and Samsung to carry the market forward each year. Although Apple expanded its iPad lineup by retaining older models and offering a lower entry price point of US$249, it still wasn't enough to spur iPad sales. Meanwhile, Samsung's struggles continue as low-cost vendors are undercutting mid-to-high-priced Android tablets with tablets that cost less but do not compromise on features.4
IBM posted Q4’14 revenue of US$24.1bn against US$22.4bn in Q3’14 and US$27.7bn in Q4’13. This equates to quarter-over-quarter growth of 7.7%, but a year-over-year decline of 12.9%. The decline can be attributed to divestment of System X and Customer Care units, which generated revenues of US$1.6bn in Q4’13. In addition, currency movements trimmed Q4’14 revenue by approximately US$1.2bn. Net income was US$5.5bn in Q4’14 against US$0.02bn in Q3’14. In Q3’14, the company realized US$3.5bn net income from continuing operations. However, during the same quarter, it recognized a US$3.4bn loss from discontinued operations. The loss includes an impairment to reflect fair value less estimated costs to sell the Microelectronics business assets, which it had classified as held for sale in Q3’14. The loss also included other estimated costs related to the transaction, including cash consideration of approximately US$1.5bn. The cash consideration is expected to be paid over the next three years and will be adjusted by working capital due to IBM, estimated to be US$0.2bn. In addition, discontinued operations in Q3’14 included operational net losses from the Microelectronics business of US$0.1bn.
Xerox Corp posted revenue of US$5.0bn in Q4’14 against US$5.1bn in Q3’14 and US$5.6bn in Q4’13. This results in a quarter-over-quarter decline of 1.7% and a year-over-year decline of 9.6%. The decline is attributed to exchange rate fluctuations. Net income of US$156.0mn in Q4’14 declined 41.4% quarter over quarter against US$266mn in Q3’14 and down 49% year over year decline against US$306mn in Q4’13. The decline in net income was due to a US$149mn loss incurred by Xerox’s ITO business. The ITO business is now considered a discontinued operation.
Lenovo posted revenue of US$14.1bn in Q4’14 and 34.5% quarter-over-quarter growth against US$10.5bn in Q3’14 and 30.6% year-over-year growth against US$10.8bn inQ4’13. This jump in revenue is due to the addition of Motorola Mobility from Google and System X business unit from IBM. The cost of sales increased at a much lower rate, leading to almost a 90bps increase in margins. However, the margin benefit was not realized in net income due to US$708mn operating expenses incurred from the acquisitions. Overall, net income of US$256.8mn declined 2% quarter over quarter in Q4’14 against US$262.0mn in Q3’14 and a 3.1% year-over-year decline against US$265.0mn in Q4’13.