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PC Stocks See Sales Dip Again: Can HP And Dell Sell Cheaper PCs To Compete With Tablets?

Chris Lau, Kapitall: PC stocks hope lower-cost items will lure more than back-to-school shoppers. Can they compete with tablets?

Gartner, Inc. recently reported gloomy PC sales as back-to-school season winds down. Total shipments dropped 8.6% to 80.3 million units in the third quarter of 2013, compared to the same period last year.

The PC market may have a place in homes that require greater productivity, for now, but there is no doubt inexpensive tablets are hurting PC sales overall. So can anything truly save the PC industry?

Shipments by the numbers

The PC shipment decline was led by Asus, Acer Group, and “others,” which dropped 22.6%, 22.5%, and 13.3% respectively:

PC sales

Some companies like Hewlett-Packard (HPQ) and Dell (DELL) may have finally shifted their focus towards the budget market.

Sales for Hewlett Packard rose slightly, while Lenovo (OTC:LNVGY) grew sales at twice the pace. Even though HP lagged, the company issued guidance that was better than the market expected. HP expects operating cash flow to be between $9 billion and $9.5 billion.

Free cash flow (FCF) will drop slightly from earlier forecasts of around $8 billion. HP aims to grow revenue by as much as 5%. Operating margin is targeted to be as high as 9%.

Cheap computers

Competitor Dell recently developed the Venue Pro 8 and Pro 11. The 8-inch device will run Microsoft’s (MSFT) Windows 8.1 and will cost just $300.

Not to be outmatched, HP is set to release the Chromebook 11 for $279, undercutting Dell’s system by $21. The inexpensive computer runs on Google’s (GOOG) operating system, which will mean users are tied to the Chrome OS and Google environment.

HP’s move into the deeply discounted PC market is necessary to stay relevant in this declining industry, but PC makers like HP will need to do more with Microsoft. This is not to say Chrome OS is inferior, but a Windows RT device costs around $120 more and offers better hardware and a bigger screen.

More importantly, the RT has more software, more storage space, and does not rely on the internet to be usable. 

Click on the interactive chart to see stock prices for PC companies over time.

PC makers running Chrome OS on their devices will now be relying on more app support from Google for users to get at least as much from a Microsoft RT device. Despite the challenges, the Chrome OS boots quickly, needs no operating system updates, and could fit the needs of users who spend most of their time on the internet.

On Amazon (AMZN), the Samsung Chromebook is ranked #1 and has 3,280 customer reviews. Google Docs could suffice, instead of Microsoft Office, while the Chrome Webstore has games and other apps available.

PC makers will likely continue developing inexpensive Windows-based computers. In the interim, the Chromebook keeps the hardware giants like HP and Dell relevant in the computing market.

 

(Written by Chris Lau, a Kapitall contributor. Data sourced from Zacks Investment Research.)

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