Pre-Windows 10 inventory clearing hits PC market

With Windows 10 coming in just a few weeks vendors have been looking to lower inventory levels during the second quarter

The strong dollar, inventory clear-outs ahead of the launch of Windows 10 later this month and a general slowdown in corporate refresh activity all combined to produce a fairly dismal time for those operating in the PC market.

Figures from the major analyst houses for the second quarter show that the hardware segment fell by around 10% year-on-year with IDC numbers (down 11.8%) slightly worse than those from Gartner (a drop of 9.5%).

Even before the latest numbers from the analysts there had been plenty of signs that things were tough in the PC market with AMD issuing a warning and other firms connected to the sector, like Micron, also revealing weak demand was taking its toll.

The comparisons with last year were always going to make the first half of 2015 difficult as the sales in the same period 12 months ago were driven by corporate spending as users moved away from Windows XP. That migration has slowed to a trickle in the last few months.

Although some of the challenges in the market seemed to have abated with the cannibalisation of PC sales from tablet alternatives not such an issue some new ones have arrived with smart phones again taking some revenue away from the market.

IDC was slightly harsher about the state of play in Q2 but said it fitted in with the wider context of what was happening in the market and should not have caused too many raised eyebrows.

"Although the second quarter decline in PC shipments was significant, and slightly more than expected, the overall trend fits with expectations," said Loren Loverde, vice president, Worldwide PC Trackers & Forecasting.

The analyst house reported weak demand and high inventory levels across EMEA as vendors look to clear out stock before Windows 10 arrives and the back to school season kicks in. Gartner echoed that analysis of the European market and added that trying to clear stock levels had hit margins because of the cost of promotions.

When it came to highlighting the main problem in the PC market the strength of the US dollar was fingered by Gartner as having caused price rises and made the hardware a slightly harder pitch.

"The price hike of PCs became more apparent in some regions due to a sharp appreciation of the US dollar against local currencies," Mikako Kitagawa, principal analyst at Gartner.

"The price hike could hinder PC demand in these regions. Secondly, the worldwide PC market experienced unusually positive desk-based growth last year due to the end of Windows XP support. After the XP impact was phased out, there have not been any major growth drivers to stimulate a PC refresh. Lastly, the Windows 10 launch scheduled for 3Q15 has created self-regulated inventory control. PC vendors and the channels tried clearing inventory as much as possible before the Windows 10 launch," added Kitagawa.

In terms of vendors Lenovo held on to the top position according to Gartner, although it did suffer the first shipment declines for a couple of years as a result of weakness in EMEA, Japan and Latin America.

The Chinese firm was not alone in seeing a decline year-on-year with HP, Dell, Asus and Acer all finding their growth hit by the general downturn in the market.

This does appear to be the storm before the calm with the forthcoming launch of Windows 10 expected to have a positive impact in the second half of year dragging back the overall declines in the market to low single digits.

"We continue to expect low to mid-single digit declines in volume during the second half of the year with volume stabilizing in future years. We're expecting the Windows 10 launch to go relatively well, though many users will opt for a free OS upgrade rather than buying a new PC. Competition from 2-in-1 devices and phones remains an issue, but the economic environment has had a larger impact lately, and that should stabilize or improve going forward," said IDC's Loverde.

Forecasts for the global PC market performance in 2015 are an overall 4.4% decline from Gartner and IDC is also talking about low single digit contractions.

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