Poor PC’s

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FAT PROPHETS: Last week we touched on how 2015 was a record year M&A and auto sales in the US, but according to the latest numbers from technology research firm IDC, it was an abysmal year for PC’s yet again…

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According to research firm IDC’s preliminary numbers, worldwide PC shipments totalled approximately 71.9 million units in the fourth quarter, representing a year on year decline of 10.6%.

For the full year, some 276.2 million units were shipped, making 2015 the first year since 2008 that full year shipments came in below 300 million globally. That was roughly 10.4% fewer than in 2014 according to IDC’s numbers, marking the biggest year on year decline that IDC has on its books for PC shipments. And amongst the top 5 PC vendors, Apple was the only one that saw an increase in shipments for the full year, with the introduction of the new 12-inch Macbook model.

It is also the fourth consecutive year that PC shipments have slipped, which is a pretty big deal. Prior to this streak of four years of declining shipments, PC shipments had decreased in just one other year since tracking began back in 1996 and that was back in 2001. And remember, in this most recent four year streak of declining sales, each year is being compared to a lower base and even back in 2011 (the year prior to the beginning of the losing streak) growth was an anaemic 1.6%, based on IDC figures.

The PC isn’t dead just yet and is still a valuable tool for a wide range of uses where mobile computing products still can’t compare (i.e. for producing content, for power users, serious gaming etc.) but is facing significant structural headwinds.

PC’s are being used for longer in most homes and workplaces before being replaced and the majority of the world looking to buy their first computing device thinks mobile first. In many parts of the world a smartphone is the only computing device many are likely to have and they may not even be aspiring to own another computing device unless their situation changes rather dramatically. Rather, it is more likely that they would upgrade their smartphone first.

And in the developed world, where many own multiple computing devices, the attachment (for good or bad) they have formed to smartphones is much stronger than with any other computing device. This is particularly the case with younger smartphone users.

A number of surveys have also found that younger users are also more likely to use smartphones to prevent boredom and even avoid talking to other people, as well as more common uses such as navigation etc.

The upshot is that PC sales have ebbed and flowed with different operating systems in the past and some expect Windows 10 to help sales this year, but we believe it’s better to fish for reasonably priced plays that are playing in segments that still have good medium term growth prospects. Companies that are catering to mobile, the Internet of Things (IoT), Big Data, the ‘electricification’ of automobiles and the like.

And recent turmoil has seen some of these companies shares fall to more attractive levels for those with the ability and patience to hold through periods of turmoil. Companies such as Taiwan Semiconductor Manufacturing (NYSE: TSM, initial buy at $10.76) and Semiconductor Manufacturing International (NYSE: SMI, initial buy $3.58) now cater to more customers addressing these opportunities than in the traditional PC space.

Another way to benefit from the explosion in data mobile and the IoT will generate is from a toll collector such as the telecommunications companies, most of which pay a handy dividend out as well. One does not need to look too far away from home for these, with both Spark (ASX/NZX: SPK, initial buy A$2.11) and Telstra  (ASX: TLS, initial buy at $3.11) worth considering in our view, offering a blend of moderate growth prospects and juicy yield.

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