Business is booming for computer makers despite semiconductor woes

By Robert Scammell

Growth in the personal computer market shows no sign of slowing down as Lenovo, Dell and HP reported strong sales amid a semiconductor and parts shortage that will see costs passed on to consumers and business.

The pandemic-induced shift by business to remote working, and the related online education surge, has bolstered personal computer (PC) sales for consecutive quarters.

The world’s three largest PC makers by market share said demand remained strong as they struggled to source components including semiconductors.

Dell, which this week reported record quarterly revenue of $24.5bn, said it will pass on the additional supply chain costs to buyers and monitor the impact it has on demand for its products.

Dell Technologies CFO Thomas Sweet said: “The supply situation has not kept up with the demand environment as we think about the need for semiconductors. And that’s an industry-wide issue, and clearly an issue that the technology industry is dealing with.”

He added that the inflationary costs this current quarter are “principally coming out of displays, DRAMs and NAND”.

It was a similar story from HP, which reported net earnings of $1.2bn on revenues of $15.9bn.

Marie Myers, CFO of HP, said: “It’s just all about demand outpacing supply and really creating that favourable environment. So, it’s basically just the laws of supply and demand, which helped us with better pricing in the quarter.”

The company also saw a recovery in its printer business, while HP CEO Enrique Lores pointed to hybrid work as a source of growth.

“The primary headwind that we see in the near term [for HP] is increased costs and margin pressure related to supply chain challenges and semiconductor shortages,” said Dave Heger, CFA of equity research at Edward Jones.

Lenovo saw profits surge 512% year on year to $260m on revenues of $15.6bn after stagnant growth for nearly a decade.

Lenovo chairman Yang Yuanqing told Reuters that he expected growth to continue even with some people returning to the office. He added that Lenovo was somewhat shielded from supply issues due to its approach of sourcing parts in-house and externally.

“There is plenty of growth left according to Lenovo and Dell, especially for laptops, tablets and Chromebooks, despite the distorted surge in demand spawned by home working and home education by the global lockdowns,” said Michael Orme, a consultant with GlobalData’s Thematic Research division. “They both report that demand is by no means exhausted and expect refreshes and upgrades among the installed base.”

According to analysts at IDC, PC shipments are expected to jump 18.1% in 2021, while Orme forecasts overall growth yield of 8-12%.

Some of the PC growth over the coming months can be attributed to companies working through order backlogs stemming from these part shortages and “cargo capacity problems” transporting components, added Orme.

Gartner figures posted in April 2021 give Lenovo a 25.1% global market share, HP 21.4% and Dell 16.5%.

Computer demand outpaces supply: Business opportunity

A global semiconductor shortage is affecting multiple sectors, including consumer electronics and automotive. Chip suppliers have been unable to keep pace with strong demand for microprocessors required to assemble devices ranging from games consoles to toasters.

The shortage has been compounded by severe weather and factory fires temporarily disrupting supply. The industry consensus is that demand will continue to outstrip supply until early 2022. This has created concerns that suppliers will pass on higher prices both to consumer and enterprise buyers. Earlier this month Cisco did not rule out raising prices of its network and telecommunications hardware because of the additional supply chain costs.

But IDC’s Ryan Reith, program vice president of worldwide mobile device trackers, said it was “important to peel back the onion” on the semiconductor shortage to understand its true impact on the PC market.

“We don’t debate that the overall semiconductor market is constrained right now, but for the overall PC market it is a very different narrative than the years leading up to the pandemic,” he explained. “Prior to 2020, the market was undergoing CPU shortages and to a lesser extent tight memory and panel supply. Now the focus is around lower-priced components like notebook panel driver ICs, audio codecs, sensors, and power management ICs.”

It is unclear how the return to the office will affect PC sales. Many organisations bought laptops for staff working remotely during lockdown and will be hesitant to spend again so soon. Alternatively, desktops that have been gathering dust in offices may be in need of an upgrade for when staff return more regularly. Regardless of computer form factor, the business sector will be important.

Orme does not think that corporate and SME demand for PCs will be “back in force in the foreseeable future”.

For the PC makers, Orme believes the chip shortage is likely to prevent them from fully capitalising on demand for the next year and a half.

“Post-Covid demand for PCs remains brisk but the capacity to make enough of the chips to power them is seriously lacking,” he said. “This chip shortage may even persist into 2023 thereby holding back the PC industry’s ability to fully satisfy demand over the next 12-18 months, especially given the existing order backlog already caused by the shortage.”

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