– PC growth could surprise during the next several quarters – even assuming a modest slowdown in U.S. consumer demand, a leading analyst said today.
Chris Whitmore of Deutsche Bank Equity Research issued a 15% year-over-year unit estimate for 2007 and 13% for 2008.
Emerging markets (40% of global units) are becoming increasingly important to global PC demand and remain healthy because of growing penetration, he wrote in a research note.
Whitmore said the corporate PC cycle will accelerate into 2008 because of upgrades to Vista-ready hardware (50% of global units). As such, Dell
provides significant upside opportunity resulting from improving corporate PC demand, its restructuring efforts and significant buybacks. Meanwhile, slowing U.S. consumer demand could disproportionately impact H-P
(17% of total PC units). However, U.S. consumers purchase only 10% of the total PC volume, making it a less meaningful driver, he adds.
During the past several weeks, major semiconductor and disk drive vendors have pointed to broad-based strength in the PC market. Intel
guided higher because of PC strength. Western Digital
also reported healthy PC unit demand. As a result of these and other supply chain checks, Whitmore believes the third quarter build was above normal seasonality, perhaps tracking as high as 20% sequentially, the company says.
While some of this undoubtedly resulted in some inventory growth, Whitmore says the combination of continued strength in international markets, no material slowdown in the U.S. consumer market as of yet, and the beginning stages of a corporate upgrade cycle are driving PC demand. As a result, the firm expects third quarter units to trend at least in line with normal seasonal growth.
Since 2003, PC units grew about 12% sequentially on average in the third quarter. DB’s current PC model calls for 12% sequential unit growth in the third quarter (or 15% year-over-year), which is in line with normal seasonality.
In the fourth quarter, the company expects the mix of growth to begin shifting, with stronger corporate and international demand to offset slower U.S. consumer demand. Any pickup in corporate PC demand should disproportionately favor Dell, while a softer consumer should disproportionately impact H-P, particularly low-end, Whitmore says.
While subprime/credit concerns raise valid questions regarding the health of U.S. consumer demand, the U.S. comprises only 27% of global PC units. Of the U.S. market, the consumer portion represents about 36% of units, or about 10% of global PC unit demand.
Consumer PC demand has been quite volatile in the past; particularly in 2005 – a year when the PC industry enjoyed 16% unit growth, Whitmore says. Meanwhile, the U.S. corporate market tends to be less volatile. After slowing considerably through 2006, it appears U.S. corporate growth is reaccelerating and may eclipse 10% unit growth in the second half of the year or in 2008.
As a result of stronger corporate demand, Whitmore expects PC unit growth to accelerate from the low teens in the first half to the high teens in the second half of the year.