The following article is from Burning Dimension , by Burning Dimension Studio
The spring of the PC market did not come with the arrival of spring.
In its latest PC market forecast for 2023, Morgan Stanley mentioned that "the entire PC market has fallen to a 20-year low."
Statistics from market research agencies also confirm this prediction.
According to Gartner, global PC shipments totaled 65.3 million units in the fourth quarter of 2022, down 28.5% year-over-year and the biggest quarterly decline since the mid-90s.
And when the ceiling of a certain business field is pressed, or even comes to the darkest moment in history, it is the giant companies in the industry that suffer a head-on blow.
Gartner statistics show that in the fourth quarter of 2022, the shipments of Lenovo, HP, Dell, Apple, and Asus, the top 5 manufacturers in the global market share, fell sharply across the board, falling by 28.6%, 29.1%, 37.0%, 10.2% and 19.8% respectively.
The performance of major PC giants can also more intuitively reflect the current situation of the weak PC consumer market.
Taking Lenovo, which ranks first in the global PC market share, as an example, Lenovo's financial report released on February 17 showed that in the third quarter of fiscal 2023 ended the end of 2022 (the three months ended December 31, 2022), the group's total turnover and net profit recorded US$15.3 billion and US$437 million, respectively, down 24% and 32% year-on-year, marking the end of Lenovo's momentum of net profit growth for 10 consecutive quarters.
Among Lenovo's three business segments, the Intelligent Devices Business Group (IDG), which accounted for nearly 76% of revenue, experienced significant fluctuations, with revenue falling by 34% year-on-year and operating profit falling by 37%, which was the main drag on the overall performance. Among them, the PC business is undoubtedly the basic plate of the sector and even the entire group, accounting for about 60% of Lenovo's total revenue.
In the earnings call, Lenovo CEO Yang Yuanqing admitted frankly, "The smart device market is now in the worst period. ”
In response to the decline caused by the cooling of its pillar business, Lenovo has taken measures to cut employees and reduce costs. Yang Yuanqing said on the conference call that "the company will need to adjust the workforce to cut expenses for some of its business." But he did not disclose the exact size of the layoffs and the positions.
In fact, the other two PC giants in the world, HP and Dell, which are the top three in the world, have also started a large-scale layoff mode in November last year and February this year under the pressure of performance, and the scale of layoffs is as high as 6,000 people.
In addition to the solution of layoffs, how to find a second growth engine is an urgent task for all PC manufacturers.
PC business "crash"
Revenue and net profit have both fallen sharply, and PC shipments have decreased by nearly 30%, but it is far more than Lenovo that has encountered "Waterloo" in performance. HP and Dell, both PC giants, have not been "spared".
According to the financial report, in 2022, HP's net revenue will be $63 billion, down 0.8% year-on-year; Net income was US$3.2 billion, down 51% year-over-year. In the fourth quarter, net revenue was US$14.8 billion, down 11.2% year-over-year; Net loss was $2 million, compared to a net profit of $3.1 billion in the same period last year.
At the same time that this poor "report card" was released, HP threw out a new round of layoffs, "4,000-6,000 layoffs in the next 3 years, accounting for about 10% of the total number of employees." ”
Dell operates the same way as HP.
On February 6, Dell announced that it would cut about 6,650 jobs, or 5% of its global workforce, in response to a sharp drop in PC demand. A more pessimistic signal comes from the company's management. Dell co-COO Jeff Clark wrote in an internal open letter, "The global PC market continues to deteriorate, and the future is highly uncertain. The company is experiencing a 'continuous erosion and uncertain' market environment. ”
Source/Visual China
Needless to say, the reason for Dell's large-scale layoffs is also the bleak status quo of the company. According to the financial report, in the third quarter of fiscal 2023 (that is, the three months ended October 28, 2022) ending the end of 2022, Dell's total revenue was $24.7 billion, down 6% year-on-year; Net profit was only $241 million, down 94% year-on-year.
Talking about the reasons for the sudden downturn in the PC market, Yang Yuanqing explained in Lenovo's third-quarter results conference call on February 17, "The current downturn in the PC market is caused by the past three years. ”
Looking back, the PC industry is a rare technology field that has enjoyed the "epidemic dividend". The pandemic has amplified the need for remote work and online entertainment, causing PC shipments to skyrocket during the pandemic. IDC data shows that in 2021, the total shipment of PCs reached 349 million units, a year-on-year increase of 14.8%, setting a new high in the annual shipment volume of the PC market since 2012.
However, some PC dealers are not aware of the so-called "epidemic dividend". Zhang Qi, head of HP dealership, told Ran Dimension that although from the data, home and online classes have indeed brought about an increase in PC sales, but as a dealer, there is no deep feeling about this, "From 2019 to now, as a single dealer, HP's sales have continued to decline." ”
For this market situation, IDC predicts that the current situation of the PC market will not improve significantly this year, and the decline in shipments will continue until 2024. However, Lenovo's expectations for this are relatively optimistic, Yang Yuanqing said on the day of the latest earnings report, "We expect that the real demand in the PC market will be flat in 2023, that is, 5% to 8% higher than before the epidemic." ”
However, in order to achieve this more optimistic expectation, absorbing the backlog of PC inventory is an urgent problem for Lenovo to solve. As Yang Yuanqing said, "Lenovo needs 1-2 quarters to digest this inventory, so annual shipments will continue to decrease by 5% compared with the previous year." ”
High inventory may have become a common phenomenon in the industry, which further exacerbates the challenges faced by PC manufacturers.
Chen Shuxin, assistant research director of IDC China, told Ran Dimension that from a global perspective, inventories are still on the high side, but the differences between different countries will be relatively large. The overall inventory situation of China's PC market is gradually improving, but in the short term, the overall market inventory is still large and needs a certain period of adjustment.
"Moore's Law"
PC, a product that has been born for decades and once became the "darling" of the technology world, is facing the fate of being replaced.
In fact, long before the pandemic, global PC shipments had been declining for many years. Discussions about the cessation of PC growth, the stagnation of the industry, and the decline of the market have also become a common topic in the industry.
Looking back at the development of the PC market, 2001-2011 is a decade of rapid development and widespread popularity of global PCs. The global PC market grew strongly, with annual shipments rising steadily, jumping from 120 million units to 365 million units.
The rapid growth momentum ended in 2012. According to Garter, global PC shipments fell by 1.2% in 2012 and continued to decline for the next seven years, with shipments of only 259.6 million units in 2018. Until the end of 2019, the sudden outbreak of the "black swan" of the epidemic greatly changed people's lives, and the rise of home office, distance learning, and online entertainment gave the PC market the opportunity to gradually recover and regain its upward momentum.
Figure: Global PC shipment statistics from 2000 to 2019
Source/Garter, Essence Securities Research Center
But the good times did not last long, and the rebound trend quickly ended as the epidemic faded, but the demand for overdraft made the recession more violent than everyone expected. According to the Gartner report, in the third quarter of 2022, global PC shipments fell by nearly 20% year-on-year, which is the largest decline since tracking this data since the mid-90s. But in the fourth quarter of 2022, the year-on-year decline of 28.5% quickly refreshed the record set in the previous quarter.
"The increasing power of mobile phones and the increasing popularity of mobile Internet applications have significantly reduced consumer demand for PCs." For the sluggish PC market, Shen Meng, chief strategist of Guangke Management Consulting, analyzed that the iPad advertising slogan, "Your next computer, why a computer" may vividly illustrate this phenomenon.
In addition to the emergence of more innovative alternatives, the demand for PCs is also clearly cyclical. "The replacement cycle is extended" and "unnecessary replacement" have become a common consumption habit of most PC users today.
"My first laptop was bought for me by my dad after I entered college in 2015. The Intel i5 processor accompanied me through 4 years of college and the first year of work. Although the computer will freeze from time to time at work, on the one hand, there is not much money at that time, on the other hand, I really feel that there is no need to change, so after changing the SSD, I insisted on using it for a long time. Xiao You told Ran Yuan that the notebook was really worn out and heavy, and he was replaced with a MacBook Air later.
In addition, according to Moore's Law, which the industry originally followed, every 18-24 months, the performance of the product doubles, or the price drops by half. But this iron law has now failed - the performance of new products has increased in "squeezed toothpaste", and the price is getting higher and higher. In September last year, Nvidia founder and CEO Jensen Huang even publicly declared that "achieving double performance expectations at a similar cost is a thing of the past for the chip industry, and 'Moore's Law' is dead." ”
Xiao Yang, a game "enthusiast" who loves 3A masterpieces, told Ran Dimension that in the past two years, various reasons have led to the inflated price of computer hardware such as graphics cards, and many game books have a very serious premium, for example, Lenovo Rescuer and other models of books, the price is still higher than the first price two and a half years ago, "I have also been forced to become a 'wait and wait party' who holds coins and waits and sees." ”
Xiao Yang further said that the computer he bought a few years ago configured with a 20-series graphics card could not play a large stand-alone computer, "I simply switched to the host camp and bought a Sony PS 5. ”
In this regard, Internet analyst Ding Daoshi analyzed that from the PC market and even the entire consumer electronics market in recent years, land costs, labor costs, parts costs are rising, product prices can not be reduced, can reduce the link or only optimize automated manufacturing production, and related management system upgrades. Therefore, PC prices will rise further in the future, although it is not consumer-friendly, but it is a big trend.
In addition, market penetration is also a difficult problem for global PC manufacturers.
The Chinese Academy of Social Sciences pointed out in the report "Promoting Smart PCs and Promoting High-quality Economic Development" that the PC penetration rate in Europe and the United States has reached more than 90%, and the PC penetration rate in mainland China is still between 21-25%. On the one hand, the penetration rate of the European and American PC market has reached the ceiling. On the other hand, tapping the remaining market potential of the mainland is not an easy task.
Ellie, a senior practitioner in the PC industry, told Ran Dimension that in terms of China's employment situation, the proportion of people who need to use computers in the huge population base is not so high, and the financial industry, civil service, government, and Internet practitioners account for less than 10% in front of the huge service industry practitioners. As an entertainment tool, PCs face the squeeze of mobile devices, and the proportion of real hardcore gamers is not high. Therefore, compared with European and American countries, the penetration rate of Chinese PCs is not so easy to increase.
Where are the "Big Three" broken?
For the entire PC industry, in addition to guarding the basic business of the main business and preventing the invasion of "stealing home" by disruptors such as Xiaomi and Huawei, how to seek transformation or diversified development has become a consensus in front of PC manufacturers.
On the road of diversified transformation, the giants moved much earlier than the outside world sees. But the future is bumpy and the environment is treacherous, and there is no shortage of people who have died on the road.
A pioneer in the PC industry, HP was once the world's largest manufacturer of personal computers. As the PC business declined, HP split its business segment into two independent listed companies, Hewlett-Packard and Hewlett-Packard Enterprise, the former mainly engaged in PC and printer business, and the latter engaged in cloud computing and other businesses.
However, even though HP's printer business has occupied the world's largest market share, over the years, HP has not achieved much success in expanding business boundaries. Due to the huge hidden dangers brought about by excessive business concentration, it has also become the first company to lay off employees in this round of PC "Big Three". You know, 3 years ago, HP had laid off 9,000 people.
Unlike HP, in recent years, Lenovo, Dell and other manufacturers have drastically adjusted their business composition, extended their tentacles to other high-profit business markets, sought new growth poles outside the main business, made up for the decline of PC business, and even released the signal of "de-PC".
Dell's main focus is to transform into an enterprise-class IT market. In recent years, Dell has acquired dozens of enterprise software and services companies, and even become the dominant enterprise data storage field through acquisitions, with a market share of more than 35%. Dell reported third-quarter fiscal 2023 revenue at a record high of $9.6 billion, up 12% year-over-year, outside of the Client Solutions Group (CSG), which includes PC sales.
Lenovo has taken a more diversified path. As a typical business expansion company, Lenovo makes full use of financial tools to go global, especially the mergers and acquisitions of IBM and Motorola, which are enough to become typical cases in the business sea. In 2019, Yang Yuanqing proposed the "3S strategy", that is, smart products, intelligent infrastructure and smart services, so the three major businesses formed carry Lenovo's ambition to explore imagination beyond the PC.
Judging from the financial report, Lenovo's diversified transformation has shown results. In this performance report, Lenovo's non-PC business revenue accounted for more than 40% for the first time. The two major business groups other than the Intelligent Devices Group (IDG), the Infrastructure Solutions Group (ISG) and the Solution Services Group (SSG), generated revenue of RMB20.3 billion and RMB13.1 billion, respectively, achieving year-on-year growth of 48% and 22.6%.
Source/Visual China
In addition, in the earnings call, Yang Yuanqing also talked about the current hot ChatGPT, which caused a huge shock in the technology industry. "Large-scale, ultra-deep AI models require a lot of data and computing power to train and run, and high-performance servers, data centers built by high-performance servers and cloud data centers are essential, which is a pull for Lenovo-related businesses."
In this regard, Ding Daoshi analyzed that after Lenovo realized that the growth of the PC market was limited, its transformation idea was to integrate software, hardware and services to make money to B. In the Internet industry in the United States, To B and To C industries each account for half, while China's current To C market accounts for seven or eight percent, which means that trillions of To B market increments exist. "Lenovo has experience in dealing with governments, institutions, and enterprises in the PC business, or it can work in this direction."
But not everyone is optimistic about the transformation of PC manufacturers. Yao Liwei, senior editor of Zhongguancun Online, told Ran Dimension, "The current PC manufacturers, even if they are transformed, may not have a qualitative change in revenue. In general, PCs will continue to be in a near-saturated market, in which case PC manufacturers can only maintain their market share as much as possible, or slowly eat away at the market share of competitors. ”
"Of course, if you want to achieve the rapid growth that you used to have, you can only wait until the next outlet and seize it, but this is a difficult thing for some established PC manufacturers with big enterprise disease." Yao Liwei said frankly.
*The title image and some of the accompanying pictures are from Visual China.
*Xiao You and Xiao Yang are pseudonyms in the text.
*Disclaimer: Under no circumstances does the information in this article or the opinions expressed constitute investment advice to anyone.
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