There is a lot of talk and predictions about what will happen to the global PC market opportunity. I feel like I’ve heard all of them, but I am sure I haven’t. They are endless. What I find more interesting is reviewing what’s fundamentally driving those predictions.
Arguably there are three primary drivers in the SMB space that will dictate how the PC market will evolve over the coming quarters:
1) PC Replacement Cycles
2) Price pressures
3) Job Losses
Let’s take a look at these three individually.
PC Replacement Cycles:
Today most agree that in the SMB space the average replacement cycle is 4 years. AMI’s quantitative and qualitative customer data supports this, but only from a “rearview mirror” perspective. In AMI’s last quarterly tracking study – Q Pulse – the majority of respondents agreed that they would attempt to find ways to extend the life of their PCs in the near future. Most likely the increase will be somewhere between 6-12 months. This could mean that instead of 25% of the installed base (IB) looking to replace their PCs every year we will start seeing less than 20% of the IB in the purchase process of new PCs every year. I doubt all verticals will be able to push their PC replacement cycles out as far as others. For example, those SMBs that apply more wear and tear on their PCs due the need to maintain more of a mobile workforce or those that are more data intensive due to their vertical focus may not see such great changes in their PC replacement cycles. In reviewing AMI’s Global Model – a global forecasting tool for numerous IT categories based on both supply and demand side (customer) data – it shows the different verticals indeed have different replacement cycles.
Traditionally we would see a 5%-8% YoY decline in average sales prices (ASPs) but as of late it’s looking more like an astonishing 14%-20% YoY decline. The increasing popularity of Netbooks could drive ASPs even lower assuming SMBs begin to adopt Netbooks and they don’t view these purchases as supplemental to their existing/planned PC purchases, but rather replacements (e.g. instead of purchasing a PC). It’s too early to say.
PC purchases have traditionally been driven by new hires in the SMB space. In the current economic environment this means that emerging markets are, at least in one key way, more attractive than more mature markets for two reasons: 1) some emerging markets are more likely to be hiring new employees than mature markets due to overall economic growth and 2) emerging market SMBs may not have the existing surplus of PCs floating around their firms due to having fewer recent layoffs. In most mature markets firms have already laid off a number of employees with most of those positions having a PC that is now not being used. Yes, there are exceptions to these rules but in general this holds true.
So what does all of this mean to PC manufacturers and vendors?
Traditional assumptions driving PC purchases are necessary to analyze and take into consideration when attempting to prioritize geographic and vertical opportunities, but they aren’t sufficient. PC manufacturers and vendors will need to dig deeper into the above 3 PC purchase drivers (especially #1 and #3) to better assess where the opportunity will be (vertically and geographically). Starting with planned PC purchases over the next 3-6 months is an excellent foundation to build upon. This will start to separate those verticals and geographies that show signs of the much discussed and little understood “pent-up demand” that is being created by all of these purchases being postponed.
Chad Thompson is the Vice President for AMI’s Market Strategy Group and can be reached at email@example.com