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The downfall of PC manufacturers

The world over PC shipments has been witnessing an incessant decline since 2011. This can be attributed to several factors including the rise of smartphones and tablets, non-replacement of ageing PCs by users and no drastic changes in versions of PC models to attract buyers leading to a decline in PCs per household in developed nations. In addition, revenues in the PC industry are also declining in line with the decrease in unit shipments. 

In a weak market, companies are fighting for the market share to increase their revenues. The market pie chart of few prominent players in the industry (2011-16) is illustrated below.  

     

An intense competition and declining shipments squeezed the market share of the ‘Others’ category from 38% (2011) to 22% (2016). Further, unit shipments of ‘Others’ category was only 40%, of what it was in 2011. This meant that as unit shipments fell Y-O-Y, the big losers were small PC manufacturers. This may lead to industry consolidation as larger players might look to expand their market share in different regions.

On the other hand, few companies such as HP, Dell and Asus captured greater market share despite a decline in unit shipments. Additionally, Lenovo and Apple registered an increase in market share and unit shipments. Lenovo became the market leader owing to high demand from China and other commercial markets, this was mostly due to the price range. Apple is the leader in ultra-premium computers and cater to a different segment of consumers. On the other hand, Lenovo despite having 3 times higher unit shipments to Apple was almost at par with the firm in terms of revenue. In 2016, Apple captured revenue market share of 17%, while Lenovo acquired 20%. This difference can be attributed to distinct price range for products sold by these companies.

Apple undoubtedly led the high-end PC market with its high average selling price and captured a greater market share in spite of a lower number of units sold in comparison to other Windows-based PC manufacturers. Apple also made the highest profits on per unit sold, this was approx. 8 to 10 times of its peers. Moreover, as far as the Windows-based manufacturers are concerned, Lenovo competes with HP and Dell primarily on prices and due to this, it captured a higher market share. Lenovo lags behind from its peers in terms of profit per unit sold despite a higher market share. This translates that a higher revenue market share by means of greater volumes sold for Lenovo did not convert to high profits. In contrast, despite a lower market share, HP and Asus had nearly identical profit per unit sold. 

Notably, the profit per unit sold for all the PC manufacturers (except Apple) was meagre and was in the range of $15-22 per unit as shown above. Likewise, profit per unit sold is declining, as manufacturers lower their ASP (Average Selling Price) to capture greater marker share in the declining sales industry.  Although, PC manufacturers hope that sales will rise as consumers replace their ageing systems, this may not be true. A large chunk of consumers have moved to smartphones and tablets and use PCs occasionally for tasks that cannot be performed on these gadgets. The consumer (home) PCs accounted for over 60% of sales (2011) and declined to 40% (2016), this means that the home-based consumer market may not rebound.

Furthermore, PC manufacturers should focus on R&D and manufacture faster and cost-efficient devices that attract commercial consumers (office). The design of devices should be newer, for specific purposes such as gaming and more profitable avenues should be explored for expansion. Similarly, upgrades and new products must enhance customer experience so that older products can be replaced with newer ones. If this does not work, PC manufacturers can completely overhaul their business model and offer novel products like hardware as a service (this is what Apple implemented in the US in order to make easier for people to buy its products).

Presently, PC manufacturers are encountering a decline in shipments, ASP and profitability until these change their products drastically or the business model.     

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