PC makers tighten inventories, remain edgy about Windows 10

Even as PC business contracts for 14th straight quarter, Mac sales surge 16%

Skittish about the impact of Windows 10, including the free upgrade-from-Windows-7-and-8.1 offer, computer makers drew down inventories and sent PC shipments plummeting in the June quarter, IDC said today.

The quarter was among the worst ever for personal computers, according to the research firm, which estimated the year-over-year contraction at 11.8%. That decline was bested only twice before in the two decades that IDC has tracked shipments: in early 2013, when the January quarter was off 13% and the September quarter of 2001, which posted a decline of 12%.

OEMs (original equipment manufacturers) shipped approximately 66 million systems in the three months that ended June 30, IDC said, down from the 75 million during the same stretch in 2014.

The dramatic downturn was due to several factors, said IDC analyst Loren Loverde, who runs IDC’s PC forecast team, including a tough comparative from last year as enterprises scrambled to replace obsolete Windows XP machines. The 2001 operating system was retired by Microsoft in April 2014.

But Windows 10 also played a part, Loverde contended. “We’ve heard from various parties, including ODMs [original device manufacturers], component makers and distributors, that they’ve reduced inventory as Windows 10 approached,” he said.

Although the industry is more bullish about Windows 10 than its predecessor, Windows 8, that’s not been reflected in larger shipments simply because OEMs aren’t sure how the new OS will play out in the coming quarter or two. To safeguard against overstocking the channel, and to some extent preparing for the launch of Windows 10, OEMs played it conservative and tightened inventories by building fewer PCs.

“Although it’s very difficult to quantify, I’d say that this inventory reduction is a little bit more dramatic than before Windows 8,” said Loverde.

Three years ago, inventories surged as PC makers cranked out devices — 85 million in the second quarter of 2012, 88 million in the third — figuring that Windows 8 was going to be a big hit and juice sales. That didn’t happen.

“There were a lot of [retail and distribution] customers buying additional inventory and promoting Windows 8,” Loverde said. “The [negative] impact on inventory is more substantial this time, and everyone is taking a wait-and-see approach, thinking that they’ll make decisions in the second half of the year.”

Some of the nervousness on the part of computer makers revolves around the upgrade offer Microsoft will extend to all consumers and many businesses with existing PCs running Windows 7 or Windows 8.1. Starting July 29, Microsoft will give those customers a free upgrade to Windows 10. The deal will expire a year later, on July 29, 2016.

Because Microsoft has never before offered a free upgrade of this magnitude, it’s uncharted territory for Windows OEMs. A host of unknowns, ranging from whether the free upgrade will keep significant numbers on old hardware to the eventual reaction to the new OS, have made computer makers edgy about committing to fully packing the channel.

“It’s even riskier when the market is declining,” Loverde said of carrying large inventories.

And the PC business has been in decline, and will continue to contract.

IDC has held to its prediction that for 2015, global PC shipments will be down 6.2% from last year’s 308 million, or to around 289 million. (That may change to an even more depressing number; Loverde said IDC had not yet adjusted the figure to account for the worse-than-expected second quarter.) In 2016, the industry will shrink by another 2%.

The brightest spot in the quarter’s forecast was again Apple, which IDC had in the OEM fourth spot with shipments of 5.1 million Macs, a year-over-year jump of 16%. Other manufacturers in the top five — Lenovo, HP, Dell and Acer — were pegged with declines of 8%, 10%, 9% and 27%, respectively.

“Apple’s a pretty unique company,” said Loverde. “They’ve cultivated their market position and product portfolio, and, of course, their positioning is towards more affluent buyers who are not as price sensitive.”

Loverde was convinced that some of the Mac’s strong sales in the June quarter benefited from uncertainties about Windows 10 on the part of consumers.

Unclear, said Loverde, is how the Mac will fare if, as IDC and others believe, Apple introduces a larger iPad later this year, a tablet better geared to the productivity chores typically handled by personal computers.

“I think there will be some impact on Mac shipments, but Apple is always willing to cannibalize its own products,” he said. “But the upside on tablets [generated by a larger iPad] and as a brand is bigger than the risk.”

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