Research firm IDC released its latest report that shows worldwide PC shipments declined by 10.6% in the fourth quarter of 2015 on a year-over-year basis. In 2015, 276.2 million personal computers were shipped, a low not seen since 2007. Although discouraging for companies in the PC business, it might not be as bleak as it seems.
What exactly is a personal computer these days?
A detail that many have overlooked in the report is that IDC doesn't count detachable tablets in its figures for PCs. Detachable devices, such as the latest Windows Surface Book, differ from traditional laptops only in that their keyboards can detach. Their power, functionality, and abilities are largely the same, and people use them for the same personal-computing purposes.
IDC notes that if detachable tablets were included in PC shipments, growth would get an approximately 6-percentage-point boost in the fourth quarter, bringing the Q4 decline to around 5%. That's still a drop, but growth in the detachable segment seems to just be getting started. For this year, IDC believes detachables will bring 2016 PC shipments from a decline of 3.1% to a positive growth rate of 1% to 2%.
The firm also noted in their report that they expect commercial adoption of Windows 10 to pick up in the second half of the year, along with consumer buying, as users upgrade computers for performance and security.
This news shouldn't affect investors because it wasn't a huge surprise. IDC was expecting PC shipments to decline by 10.3% year over year in 2015, so the 10.4% decline was a little more negative than expected but should have largely been priced in. The more important question is what information the report may be spelling out for the future.
What to watch in the traditional PC market
Investors should remain wary of traditional PC manufacturers such as HP (NYSE:HPQ), which had the biggest decline in shipments for the quarter. The bright spot in the report was Apple (NASDAQ:AAPL) -- the only large PC vendor to put up positive growth numbers in the U.S. for 2015. Apple even edged out Lenovo for the third spot in number of units shipped in the fourth quarter.
There's still an appetite for premium computing products. While the IDC report didn't mention it, it's evident in the secular growth seen in performance and gaming PCs -- an area that mobile devices haven't yet cannibalized since they require faster and higher-end components to handle demanding tasks or graphics. Intel Corporation (NASDAQ:INTC) estimates that gamers refresh their PCs every two years and that gaming PC shipments are growing at 26% per year.
Another factor that could boost demand for high-end PCs is the rise of virtual-reality systems such as the Oculus Rift, which will place very high resource demands on the computers that run them. Investors could look to companies such as NVIDIA Corporation (NASDAQ:NVDA) to play the gaming and graphics-intensive trend. NVIDIA makes the popular GeForce graphics processor that many PC gamers use. While the company has branched out into other areas, gaming still makes up over half of its revenue and is experiencing over 35% year-over-year growth.
And keep an eye on detachables
Along with regular tablets and smartphones, mobile device shipments are still growing, and investors should stay keen on companies that produce mobile chips and components. Intel could make a comeback as detachables are moving toward full-fledged PCs with Intel processors, which previously had been displaced in tablets by lower powered ARM processors.
It is a bit too early to tell which producers will lead in the detachable market, but Microsoft Corporation (NASDAQ:MSFT) is on the offensive with three different Surface products. Combined with the potential upgrade cycle for Windows 10, it could be a good year for Microsoft.
So while PC shipments were down compared with the previous year and quarter, the drop was already largely expected and looks to be bottoming out at the beginning of this year. Further, detachables and other mobile devices need to be included in the figures, since these devices are now serving as primary PCs for many people. Finally, investors should always be on the lookout for the secular growth spots, even within a broader declining space.