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Due to skyrocketing COVID demand for desktop and notebook computers from businesses and individuals, PC makers have struggled to build enough computers and get enough components. However, with warehouse shelves now mostly stocked, demand for PCs has slowed due to inflation and uncertainties caused by the war in Ukraine. As a result, Acer chairman Jason Chen warned this week that an oversupply of notebooks is coming.
Weakening Consumer PC Demand
Rising prices of energy, food and other vital items have led to record high inflation rates across the globe. As a result, many people are rethinking their spending habits and cutting back on technology purchases. In general, the last few months have not been very good for client PC sales in the consumer sector, DigiTimes reports. Acer, Asus, and HP have shown in recent weeks that the consumer market was showing signs of weakness and that demand was declining.
“From the point of view of demand, we expect to continue to see strong commercial demand with some softening of the consumer businesses,” said Enrique Lores, President and CEO of HP, in the company’s earnings call on May 31. “On the supply side, we’re seeing two quarters of constraints. First is the industry-wide component shortage that we expect to continue through fiscal 2022; secondly, are the disruptions related to COVID-19 in China, which we expect to primarily impact fiscal Q3.”
HP PC sales rose 18% year-over-year in Q2 2022, but the company’s consumer systems sales fell 6% YoY. In terms of product categories, increased prices and higher sales of premium systems drove notebook revenue up 3%, desktop revenue up 28%, and workstation sales up 21% year over year.
According to IDC, softness in consumer PC demand will reduce 2022 PC shipments by 8.2% compared to the previous year. Desktop and laptop computer shipments reached 348.8 million units in 2021, so they are predicted to decrease to 321.2 million units this year.
Inventories Being Liability
Ever since demand for PCs began to exceed supply in Q2 2020, PC makers have been working overtime to source components and build inventory to meet demand. Leading PC makers such as Acer, Dell and HP bought chips directly from their developers/manufacturers and stockpiled them to avoid disrupting their supply chains.
Now that demand for consumer PCs is falling (although not as high as pre-pandemic levels), their inventories are becoming a liability as oversupply drives down prices, which is good for the end user but not good for business. In fact, Acer’s chairman said that the supply of laptops was already higher than the demand.
Companies like Acer, Asus, Gigabyte, and MSI tend to sell to consumers, so they will suffer from waning demand, especially for entry-level and mid-range systems. DigiTimes he recalls that based on the balance sheets of the first quarter, the inventory value of Acer, Asus, MSI, and Gigabyte increased by 26.59%, 79.51%, 77.62% and 64.59%, respectively, year after year. The inventory build could be good if the demand was there, but now that it is weakening, they could be a loss since some components and finished goods lose value quickly.
However, not all PC makers suffer from declining demand or worry about oversupply in the market. For example, if you buy a MacBook Pro 14/16 from Apple today (in the US or Europe), the company won’t be able to deliver it until August. The systems are available for pickup from select Apple stores, however.
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