Computers are getting more expensive, and here’s why!
The world-wide personal computer industry saw another quarterly decline in sales during the second quarter, as price hikes caused by memory chip scarcity scared some consumers away.
According to data for the second quarter from Gartner Inc. and International Data Corp., PC shipments fell 4.3% and 3.3%, respectively, in the second quarter world-wide. That’s a quicker decline for the PC industry than the previous quarter, when Gartner saw a decline of 2.4% and IDC saw them tick up very slightly at 0.6%, in signs of some stabilization in the market.
One reason both analyses mentioned is higher computer prices for consumers, which they noted was due to higher prices for certain components, namely memory chips. While companies could not raise prices too quickly on computers sold to businesses, especially at large enterprises where contracts lock in prices, consumers are reportedly seeing higher price tags.
“In the consumer market, the price hike has a greater impact as buying habits are more sensitive to price increases,” Gartner analyst Mikako Kitagawa said Tuesday. “Many consumers are willing to postpone their purchases until the price pressure eases.”
Memory chip prices, both DRAM (dynamic random access memory) and flash memory components, started to jump last year, with higher demand driving a big up cycle, especially for cloud computing hardware. Other factors include NAND flash memory becoming a popular replacement for solid disk drives, and build-up for fall product launches like the expected new iPhone taking up supply, as Micron Technology Inc. MU, +0.64% told investors earlier this month.
At a meeting in February, an executive at chip giant Intel Corp. INTC, +3.82% showed a slide indicating that average selling prices for PCs have climbed steadily since 2014. The recent move appears more significant, though: Kitagawa said that it is still early in her research, but she estimates price hikes have ranged from about 2-3% to as much as 10% versus a year ago.
“Vendors raise the price for both new and existing models,” she said. “For instance, a model A used to be $500, but the same model A with same configuration is now $550.”
She said some companies are also adding less memory, stripping down the specifications of the system and instead installing smaller amounts of DRAM at prices that would have covered larger memory modules in the past.
Advance, contract purchasing of large amounts of memory chips helped some PC makers, who either avoided raising prices too much, or just absorbed the price hikes.
“The approach to higher component costs varied by vendor,” Kitagawa said in a statement.
HP Inc. HPQ, +1.77% has fared well so far among the major PC manufacturers, managing to take back the top spot for shipments after losing it in 2013. Company executives told investors in late May that it raised prices around the world on its products during its fiscal second quarter, “in response to the increased cost of components and unfavorable currency impact.”
Lenovo Group Ltd. 0992, -0.23% lost share, dropping to No. 2 world-wide, followed by Dell Inc. and Apple Inc. AAPL, +0.03% , according to both analysis firms.
RBC Capital Markets analyst Amit Daryanani said in a note to clients that the drop in unit shipments in the quarter was pretty much in line with Intel’s forecast for the PC industry and suggests a “small moderation” in year-over-year trends.
“We think the overall year-over-year trajectory is improved versus prior year levels, and we think year-over-year performance should continue to improve in calendar 2017,” he said, noting that some companies’ data was tracking ahead of Gartner’s, which does not include Chromebooks in its tally. Last year, IDC reported that overall PC shipments fell 5.7%
Now, the big question is whether the higher prices will continue into the second half of the year, which is typically the busiest season for PCs because of the back-to-school and holiday shopping seasons. Higher prices will surely deter some consumers, but price cuts to woo them would also hurt the already thin profits at PC makers.
As the memory chip constraints and higher prices filter down to consumers, we are likely to see fewer new computers on campus and under Christmas trees later this year, or rough profits for PC makers. Either way, there will be some lumps of coal in stockings by the end of the year.