Wedge Partners analyst Brian Blair earlier this week took a look at the PC sector and came away convinced that the troubles could get deeper still. He notes, for instance, that Windows 8 devices appear to be sees "only modest sales out of the gate," below expectations at retail. "We realize its early still, but the initial indications on sell through point to disappointment for Q4," he writes in a research note. " Could Q1 turn the trend? We aren’t hopeful and so we believe the question for investors is how much worse can it get for the PC industry from here?"
Blair's view is that given signals from the supply chain and the state of end demand, another down leg for the PC industry is likely in the near term. He offers three reasons for his gloomy prognosis for the sector:
- He thinks sales of Windows 8 hardware over the Black Friday/Cyber Monday shopping period will disappoint. "We don’t believe new Windows 8 devices are very high on consumer shopping lists this week and this next 5 days will certainly be a gauge of what the holiday season looks like," he writes.
- Weaker sales, he adds, in turn will lead to reduced production. "While we understand that a number of OEMs have pared back production slightly from unit estimates given several months back prior to the Windows 8 launch, we believe that following this weekend, we will see another round of OEM production cuts for all Windows 8 devices, particularly for the so-called convertible notebooks and desktops, where we feel demand is particularly low. This is likely to lead to further cuts in forward estimates for [the December and March quarters] from key PC companies. "
- And he says that "nearly all of the buying activity" on black Friday will be focused on tablets and smartphones, which are "the greatest disruptor to PC sales." He notes that there is "strong promotional activity" around Android tablets in particular, with many priced below $150. He thinks flat-screen TV sales will be "solid" this week, and he expects a "small surge" in video game sales." But for PCs, he's less optimistic.
Blair thinks revenue and EPS estimates are too high for 2013 for PC food chain players in many cases. He notes, for instance, that some students are choosing iPads instead of notebooks, with an increasing selection of iPad keyboards available from companies like Belkin, Zagg and Logitech.
Concludes Blair: "Our view continues to be that both tablets and larger 4+ inch smartphones are increasingly meeting the bulk of consumers’ computing needs and that this is a larger trend which will continue to weaken PC industry growth in 2013 as well."
