Following a stronger-than-expected 2019, PC sales appear poised to cool in 2020.
Strong corporate demand gave a lift to PC sales in 2019, as legions of businesses bought Windows 10-based systems ahead of Microsoft's (MSFT) ending of Windows 7 support on Jan. 14th. And while consumer PC demand was softer, major PC OEMs did report seeing pockets of strength on the high-end, in segments such as gaming PCs and premium thin-and-light notebooks.
With Microsoft's Windows 7 deadline just days away, business PC upgrade activity is likely to slow this year, even if (as Microsoft has suggested) some businesses might still be working to replace Windows 7 systems after the deadline has passed. Moreover, for the first half of 2020 at least, it looks as if Intel (INTC) PC CPU shortages will prevent some of the demand that does exist from being satisfied.
In late November, HP Inc. (HPQ) signaled that it expects Intel PC CPU shortages to continue at least through April. And rival Dell Technologies (DELL) cited the shortages as one of several reasons why it's now "slightly more cautious" about expected growth in its fiscal 2021 (ends in Jan. 2021).
Notably, whereas Intel has previously talked about shortages only impacting low-end CPUs, as it prioritized shipments of costlier chips, Dell said on its call that sales of commercial PCs and "premium" consumer PCs are now also being affected. The IT giant also predicted that "tailwinds from the Windows 10 refresh cycle" will fade during the first half of fiscal 2021.
Likewise, in December, Micron (MU) CEO Sanjay Mehrotra forecast CPU shortages would weigh on 2020 PC DRAM bit demand, which is expected to be below Micron's industry-wide outlook for mid-teens bit growth.
And this week, Taiwan's Digitimes (citing sources at local notebook contract manufacturers) reported that CPU shortages and high customer inventory levels led notebook shipments to be weaker than expected in Q4. The site added that notebook makers expect shipments to drop 10% to 15% sequentially in seasonally weak Q1.
Contributing to the shortages: Amid tougher competition from AMD (AMD) , Intel has been upping core counts for chips within newer PC and server CPU lines relative to older, comparably-priced chips, all while continuing to rely heavily on a 14-nanometer (14nm) manufacturing process node that's now showing its age. And since (in the absence of a newer manufacturing process that improves transistor density) upping a chip's core count boosts its wafer die size, Intel's actions are putting a strain on its 14nm manufacturing capacity.
Intel has been hiking its capex in response to its supply constraints, and (in what's good news for chip equipment makers) is promising majority capacity increases for 2020 as well. But supply clearly isn't going to catch up with demand overnight.
And while the Intel shortages are on the whole good news for AMD and manufacturing partner Taiwan Semiconductor (TSM) , it's worth keeping in mind that customers still have to choose to buy AMD-powered systems. Though AMD's PC CPU lineup has gotten a lot more competitive in recent years, there are still quite a lot of consumers and businesses that are pretty loyal to Intel.
Different companies within the PC supply chain will be hurt to different degrees from softer PC sales. The likes of Intel, HP and Dell might be affected the most. For companies such as Microsoft, Micron, Seagate (STX) and Western Digital (WDC) , which still have sizable PC exposure but depend less on the industry than they did in the past, the impact is likely to be more moderate. And in the case of Nvidia (NVDA) , it's worth noting that the company has downplayed the impact of CPU shortages on its gaming GPU sales.
But either way, at a time when the shares of many of the aforementioned companies have enjoyed big run-ups, those invested in companies with meaningful PC exposure should keep a close eye on what's shared about industry sales trends this month. Research firms IDC and Gartner should be sharing their Q4 numbers within the next week, and a slew of companies with PC exposure will be reporting later in January.