PC sales in the first quarter of 2021 totaled 83.981 million units, up 55.2% year-over-year, with all major PC makers reporting huge revenue gains for the first trimester. However, meeting the extraordinary demand was a big challenge for vendors as virtually all PC components suffer from continuous shortages.
Dell and HP expect PC demand to remain strong (and even increase) in the coming months, but a resurgence of COVID-19 in Southeast Asia has complicated an already risky situation. In an effort to meet demand, major PC manufacturers have started stockpiling some components, exacerbating shortages for other players.
Supply constraints persist, but storage helps
High demand is good for the PC industry, but suppliers need to source enough components to meet that demand. It is not an easy task amid today’s global supply constraints.
The top 3 PC makers – three multi-billion dollar companies – have strengths their rivals simply cannot match, such as purchasing power and supplier relationships. Naturally, businesses will continue to use these advantages to support their growth. In particular, HP admits that it is buying too many processors to make sure it has them when it needs them.
“To improve assurance of supply, we are achieving higher levels of owned inventory, and as we said, we are doing this to navigate during this time,” said Marie Myers, CFO of HP. . “So the HOI at this point is likely to stay high to support the growth of the business. This includes strategic purchases […] especially in processors. ”
Chinatimes reports that in addition to strategic processor purchases, HP has also secured a large supply of power ICs, network controllers, display drivers and other chips from companies such as Realtek, Richtek, Spectrum, MPS, NXP, Renesas and Silica. In addition, the CEO of HP met with AU Optronics to secure the panel supplies. To ensure that it can ship the maximum number of PCs possible, HP purchases more chips than it needs and stores them. Meanwhile, industry watchers believe Dell and Lenovo will follow suit to stay competitive.
“The component supply situation remains tight and we expect component costs to be inflationary in the second quarter and likely will be in the second half as we think about today,” said Thomas Sweet, CFO from Dell. “It comes mainly from screens, DRAM and NAND. […] I think in terms of pricing, we intend to price input cost increases as appropriate, keeping a close eye on the market and making sure that we are in a competitive position. ”
Lenovo, which has its own manufacturing capabilities, also buys components on long-term contracts and stocks them.
“Lenovo has a [business] model, ”said Yang Yuanqing, general manager of Lenovo. “We do 50% subcontracting and 50% in-house manufacturing. This unique model therefore gives us the advantage of approaching suppliers upstream and of having a better relationship with that. So, in a shortage like this, we can take advantage of this relationship to improve the supply situation. I am therefore convinced that we will continue to outperform the market and the main competitors and enjoy sustainable growth. ”
Overall, storage might not be a bad idea for large PC makers because it stabilizes prices and lowers their risk. However, storage makes it more difficult for small suppliers to source parts.
In addition to component costs, there are other factors that impact the business of PC vendors. Logistics is getting more and more expensive, so they need to book containers and air freight well in advance (so companies actually need to secure the supply chain).
” We see [increasing] component costs and logistics costs in both [PCs] and printing, and they’re going to be an incremental headwind both quarter over quarter and year over year, and these aggregate baskets of commodities, especially in panels, circuits integrated and PS, then integrated circuits and resins in printing, ”Myers said.
The supply actually improves as the industry ramps up the production of various components, but the demand is also increasing. Therefore, Lenovo expects the shortages to persist for another 1 to 1.5 years, but the company does not expect them to get worse.
“To move forward, I don’t expect more [shortages] deterioration, but it is certain that we will continue to face the shortage for the next 12-18 months and to come, not only of the demand for PC but also of other products, automobiles, etc.
“Currently, supply is not sufficient to meet strong demand and the resurgence of COVID in Southeast Asia is putting additional pressure on our supply chain,” said Enrique Lores, CEO of HP, during the company’s conference call with analysts and investors. , according to SeekingAlpha. “We expect supply constraints to continue at least until the end of 2021. […] We are seeing an increase in backlog on PCs and printers. ”
PC demand is expected to remain high for years to come
“In 2019, the usable TAM for the entire customer ecosystem was around $ 600 billion and for the calendar year 2025 it will increase to $ 750 billion,” said Jeff Clarke, director of operating Dell, during the company’s conference call with analysts. and investors. “This expansion of TAM is driven by an increase in the number of systems per household, faster refresh rates with a higher mix of laptops, and investments in a hybrid and remote workforce.
Today, consumer PC sales are particularly strong as many people continue to work and learn from home. As offices reopen later this year, demand for business PCs will increase at steady levels (as businesses replace their systems from time to time). Meanwhile, the demand for consumer computers is not expected to decline significantly (although it is probably a little lower than today), as many people have realized the importance of personal computers. and can now work from home. As a result, overall PC demand will remain strong for quarters to come, meaning shortages will continue as the industry has yet to build the production capacity needed to meet existing demand.
“Speaking of PC demand, […] there are many companies in the world [that] are finally opening up, “Lenovo COO Gianfranco Lanci told analysts and investors on the company’s recent conference call, according to a transcript from SeekingAlpha. […] I see [strong] PC request […] moving forward [in] the following quarters. I think the real difference isn’t because people work from home, learn from home, play from home, everything at home, but I think the major difference is [that] people are starting to realize [that] they need only one pc [per person] and not one or two PCs per household. ”
Another driver for the PC market is the existing fleet of obsolete PCs. Lenovo expects customers to buy not only additional machines, but also newer PCs in an effort to be more productive and / or play the latest video games.
“We have a very old installation base – four, five or six years in huge numbers,” Lanci said. “Because if you want to have a good experience, you need a brand new PC, not a four or five year old PC. So I’m pretty optimistic. [about demand going forward]. ”
All PC makers agree that PC sales are expected to increase in the short term. Meanwhile, Dell appears to be extremely optimistic about the long-term future. Dell is confident that the client PC ecosystem will expand to $ 750 billion by 2025, which means the market will consume more chips, more panels, and more materials.