It's been a tough year for makers of personal computers as well as for those who manufacture DRAM modules used in PCs. A combination of worsening economic conditions, a shortage of hard drives, and the ever-growing competition from tablets such as Apple's (Nasdaq: AAPL ) iPad drove down PC shipments in the third quarter of 2011.
The mobile-PC market was hit hard with a 12.6% drop, pushed by a more than 40% crash in shipments of mini-notebooks. The consumer segment has also taken a huge beating, down 18.8% compared with last year. Though the migration to Windows 7 was estimated to boost sales, the professional segment slumped 2.1%.
While HP (NYSE: HPQ ) maintained its No. 1 position despite a 7.5% fall, Dell (Nasdaq: DELL ) saw a 10% decline. The biggest loser was Acer, with a jaw-dropping 45% fall in demand in comparison with last year.
Apple laughs its way to the bank
Among the PC biggies, Apple saw 19.6% growth in both the consumer and professional markets.
And that's not the end of party for Apple. There's likely to be an avalanche of tablet demand at Christmas, with Apple continuing to reign over the space. However, Amazon.com (Nasdaq: AMZN ) is set to grab its share of the tablet pie and is expected to throw Samsung out from its second place, or so says a survey conducted by market research firm ChangeWave.
The demand for tablets has multiplied threefold over the same period in 2010, while PC sales have increased by a mere 1%. But the iPad isn't the only reason PC makers are facing the heat.
Facing hard times
Both Seagate (Nasdaq: STX ) and rival Western Digital (NYSE: WDC ) have their hard-drive manufacturing facilities in Thailand, which was recently hit by heavy floods that killed at least 320 people and wreaked havoc on several industrial units.
As a result, Seagate recently announced that it will lower its shipment target for the quarter to between 41 million and 45 million units, about a 10% to 18% sequential dip. It could take nine months to almost two years to restore normal production.
Prices of hard drives have already increased with scarcity, and PC makers say they'll have to pass the buck on to consumers. Computer maker Acer said the price of its PCs will probably go up by 2%-3% at least. Other PC makers, such as Dell and Asus, are also considering price increases on their PCs.
Make hay while the sun shines
While hard disks drown in the Thailand floods, there could be a significant opportunity for manufacturers of solid state drives (SSDs), which rely on NAND flash memory instead of DRAM. The beneficiaries could include manufacturers OCZ (Nasdaq: OCZ ) , STEC (Nasdaq: STEC ) , and Sandisk (Nasdaq: SNDK ) , as prices of flash-based storage have been falling steadily.
DRAM gets rammed
While hard drives have suffered a drop in supply, the supply of DRAM chips has been plentiful throughout the year. In fact, there's an oversupply that has led to a crash in the average selling price, according to Win Cramer of Avian Securities.
DRAM is used in PCs, laptops, and netbooks, and companies that make DRAM chips have suffered losses intermittently over the past four years, according to data from Bloomberg, which also reveals that chip prices fell by a staggering 32% in Q3. According to research firm iSupply, growth of DRAM per PC is also slated to fall to 35% after next year, compared with the eye-popping 48% average growth the industry enjoyed for 25 years.
The combination of a slowdown in the PC industry and fewer memory requirements for running the latest versions of Windows has also led to the plunge in demand. As a result, memory-module maker Micron Technologies (Nasdaq: MU ) has come out with a warning that the continuing situation of DRAM oversupply could hit the company's margins hard. Though this may be good news for PC companies as prices of RAM chips fall, it's definitely not good for those who make it.
The Foolish takeaway
The PC industry has taken a beating from several sides and resulted in a deceleration in the consumption of personal computers. Growing economic concerns, high unemployment levels, and lower consumer discretionary spending have all dented PC sales even further. As a result, you can expect computer makers and DRAM manufacturers to face the heat for many months to come. However, on the flip side, hard-disk makers could see a rise in margins as demand outstrips supply.
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