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Here's Why PC Sales Keep Dropping

By Motley Fool Staff - Apr 26, 2016 at 4:44PM

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Getting a new computer doesn't bring the improvement it used to.

For the sixth quarter in a row, personal computer sales have dropped -- this time, by a whopping 10% year over year.

In this clip from the Market Foolery podcast, Chris Hill, Jeff Fischer, and JP Bennett explain why. Find out how the rise of smartphones has undercut PC sales and how the way the upgrade cycle has changed in the past decade has further reduced consumer demand. It's not a pretty picture for the industry, but some companies will take it harder than others.

A full transcript follows the video.

This podcast was recorded on April 14, 2016.

Chris Hill: For the sixth consecutive quarter, sales of personal computers have fallen. They are now down to levels last seen in the year 2007. Maybe not a surprise, but I have to believe, beyond the PC makers themselves, that among the companies not happy about this trend is Intel (INTC -0.86%).

Jeff Fischer: Intel is down a little bit this morning as a result. And it's not a big surprise, but the size of the drop, maybe. It's estimated, the research shows, PC sales fell about 10% year over year. That's a big decline. Now, one reason is, corporations are taking their time to switch over as the Windows 10 software rolls out, which, fully, that'll be later, the second half of this year. But the bigger problem, really -- and by the way, Chris, total business IT spending is still predicted to go up this year.

So if you're a technology investor, there's still plenty of money being spent on technology. It's still a growing industry. But PCs themselves, it's households, mainly, and it's mainly emerging markets, where, as we know -- most listeners have heard this story before -- those new to the PC industry are getting in through a smartphone, typically. Even more than tablets, and certainly more than PCs themselves.

It does what they want and need at a lower price point, and with bigger screens on smartphones, it has convenience and a large enough screen to enjoy it. When you and I grew up, PCs were the way to enter the computer world. That's changed rapidly and has lasting repercussions.

JP Bennett: Yeah, and one thing, I think, I don't know if there's any research out there, but I feel like, in developed markets, we've kind of gotten to the point where we really don't need -- so, what was it, historically, there was a three- or four-year upgrade cycle. For people who were really into tech, it was a lot shorter, obviously.

But we've gotten to the point where, the advances you're seeing really aren't having as big of an impact they once did, when you were younger, when it was like ... if you parallel this to what you saw in video game consoles, you go back to the N64 and the Super NES, those jumps between consoles, there was a huge difference, so it made you want to upgrade. Now, it's like, OK, I have this Mac, it can run Excel fine, it can do PowerPoints, it can do Word, it can do everything I want it to do fine, and it'll be able to do that for the next 10 years.

Why do I really need to upgrade? Do I want a shinier MacBook with a better screen? Maybe, but the drive to upgrade --

Hill: Well, so you can have processing speeds that are 8% faster! [laughs]

Bennett: Exactly, right?

Fischer: That's a great point. The differences used to be enormous.

Bennett: And you saw it with video game consoles. The top-selling consoles are all those older ones, because there was such a huge jump. The latest generation, like the Xbox One, the PlayStation 4, and stuff like that, they really haven't been selling that well. And I think, to a certain extent, it's because the change ... why do I need to upgrade now? Maybe I want newer video games, but there isn't as big of a difference as there once was between generations.

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