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​Why profit opportunities still exist for struggling PC vendors

​Why profit opportunities still exist for struggling PC vendors

Why PC vendors must focus on optimising profitability to sustain growth.

The worldwide PC market registered one of its lowest quarterly growth rates in the first quarter 2016, but several profit opportunities still exist for PC vendors.

“PCs are no longer the first or only devices users are choosing for internet access,” Gartner principal research analyst, Meike Escherich, said.

“Over the last five years, global shipments of traditional PCs (desktops and notebooks) have fallen from 343 million units in 2012 to an estimated 232 million units in 2016. In terms of revenue, the global PC market has contracted from $US219 billion in 2012 to an expected $US122 billion in 2016.”

In short, Escherich said many vendors in the mid-tier of the PC ecosystem are struggling.

“They are severely reducing their regional and country-level presence, or leaving the PC market altogether," Escherich said.

“Between them, Acer, Fujitsu, Samsung, Sony and Toshiba have lost 10.5 percent market share since 2011. In the first quarter of 2016, Dell, HP Inc. and Lenovo gained market share but recorded year-over-year declines.”

Nevertheless, PCs are still able 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 (ASPs), PC vendors must focus on optimising profitability to sustain growth,” Gartner research vice president, Tracy Tsai, added.

Ultramobile Premium

Despite a declining PC market, the ultramobile premium segment is on pace to achieve revenue growth this year - the only segment set to do so.

According to Gartner, is estimated to reach $US34.6 billion, an increase of 16 percent from 2015 while in 2019, the analyst firm forecasts that the ultramobile premium segment will become the largest segment of the PC market in revenue terms, at $US57.6 billion.

“The ultramobile premium market is also more profitable in comparison with the low-end segment, where PCs priced at $US500 or less have 5 percent gross margins,” Tsai added.

“The gross margin can reach up to 25 percent for high-end ultramobile premium PCs priced at $US1,000 or more.”

Tsai said the segment will continue to grow thanks to replacement demand for traditional PCs and the touch experience that the two-in-one market (tablets and hybrids) provides.

While the ASP for the ultramobile premium segment is not expected to fall rapidly, it will eventually move toward $US600 in constant-currency terms.

“This situation, together with innovative two-in-one products, will entice users to not only replace their PC, but also look to upgrade to a device with more functionality and flexibility,” Tsai added.

Internet of Things

Tsai said PC vendors also need to turn to the Internet of Things (IoT) market and identify which of its areas have most potential for profit.

For example, PC vendors can use the IoT to improve customer service and product improvement.

“Vendors could detect with sensors if a battery is getting too hot or a hard-disk drive is being overworked, and they could send an alert to customers to get PCs checked before they suddenly go down,” Tsai added.

“This would save vendors' operating costs and also helps users with better service.”

Gaming market

While the gaming PC market is a very small market with only a few million units sold a year, Tsai said the ASP of a gaming PC is significantly higher than that of a non-gaming PC, ranging from $US850 for an entry-level gaming PC notebook to $US1,500 for a premium model.

“The high-end, purpose-built gaming PC segment (for example, $US1,000 or more) is where PC vendors should focus for long-term profitability, despite this segment's competitiveness,” Tsai added.

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