PC Sales Off to a Terrible Start in 2016, but Apple Inc. Comes Out Ahead

By Markets Fool.com

Source: Apple

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Just because things are bad doesn't mean they can't get worse. Two big market research firms are out with their latest estimates of global PC shipments, and the results aren't pretty.

estimated that PC shipments fell 9.6% in the first quarter of 2016 to a low not seen since 2007. This marks the sixth consecutive quarter of declines. IDC estimated an even larger decline of 11.5% year-over-year, slightly worse than the 11.3% drop expected.

While the two reports differ slightly in their estimations, they both agree that Apple fared better than the rest of the industry. According to Gartner, Apple shipments grew 1% year-over-year during the quarter, while IDC had Apple shipments declining2.1%.

Apple also appears to be gaining market share, with both reports showing Apple expanding its footprint, even edging out Asus on the IDC list as the #4 biggest vendor. Dell also appeared to be a market share winner, likely powered by its popular XPS laptop line that received rave reviews, as well as an update to the latest IntelSkylake processors earlier this year.

Same song, second verse
The primary driver behind the PC decline remains unchanged -- highly capable smartphones and tablets have reduced the need for consumers to purchase new PCs. This trend extends to emerging markets where people are skipping personal computers and going straight to smartphones.

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However, Gartner did offer one reason for the decline that is separate from the larger trend: the strengthening U.S. dollar. As central banks around the world, especially the European Central Bank and the Bank of Japan, continue to try to weaken their currencies, the U.S. dollar strengthens by comparison. This makes it more expensive for foreigners to purchase U.S. products.

The IDC report also cited global volatility in stocks and commodities as another reason for the decline. Frankly, I'm not exactly sure how this is directly connected to PC sales other than the fact that increased uncertainty could lead consumers to delay big ticket purchases like the family computer.

What about Windows 10?
As the PC market continued to slump last year, all investors heard was, "Just wait for Windows 10 to boost PC sales!" Unfortunately, that has yet to happen.

First, most consumers are still able to upgrade their existing personal computers to Windows 10 for free, so there is less of an incentive to purchase a new PC just to access the latest operating system from Microsoft.

Second, enterprise users are still testing Windows 10. With that in mind, both IDC and Gartner are upbeat about Windows 10 adoption toward the end of the year. IDC also notes that peak education and corporate spending on new PCs tends to happen during the second quarter.

What does this mean for investors? While the numbers were far from encouraging, they were largely in line with expectations. Going forward, the question is whether we are finally approaching the bottom of the PC market.

IDC believes total business IT spending is still expected to grow in 2016 compared with last year, especially as Windows 10 testing turns into actual adoption and purchases. We should then see some of that flow through to Microsoft's financial results.

Intel should also benefit if the PC industry finally hits bottom and rebounds. However, the company now generates just as much of its profits from server chips as PC chips, so it's more diversified and insulated.

Apple is of course a winner here, but because its Mac sales are only about 10% of its revenue, even outstanding results won't make much of a dent in the shares. What about the other manufacturers? Though Dell is doing well, the company was taken private in 2013. And both reports show that HP was the worst performer, so investors should carefully consider any investment with the struggling hardware company.

The article PC Sales Off to a Terrible Start in 2016, but Apple Inc. Comes Out Ahead originally appeared on Fool.com.

Chris Kuiper has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Gartner. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.