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Gaming the Q1-2011 PC Numbers

With the end of the first quarter of 2011 at hand, this analyst sits with a cup of coffee and some thoughts on how the PC industry did in Q1. The short answer is: mediocre. The reasons are atypical and not apt to be repeated.

As a caveat, let me deny any knowledge of anybody’s numbers on the actual Q1. This piece is speculation, and you can play the game too.

I forecast PC and notebook processors grew at an 8% annual rate in the first quarter. That would be well below the going-in forecasts of the big PC numbers houses, IDC and Gartner. My own forecast for 2011 made last December is for 9% growth in 2011, negatively impacted from greater growth by macroeconomic conditions.

It’s a strange quarter for the following reasons:

  1. The Tablet Effect – there is no doubt tablets are eroding the low-end, “netbook” devices, evaporating what had been a 10 million unit emerging market a year ago;
  2. Sandy Bridge Anticipation – anybody with an Internet connection knew at the start of the quarter that Intel’s about-to-be announced Sandy Bridge offered much better performance at the same price than last year’s processors. So, both hardware OEMs and customers held off early-quarter purchases while “waiting for Sandy Bridge”. What no one anticipated was the …
  3. Sandy Bridge Chipset Hiccup – the late January recall of Sandy Bridge chipsets by Intel was the single event that screwed up the quarter. OEMs had to recall shipped motherboards and desktop PCs, and to stall their factories for weeks waiting for updated chipset silicon. Importantly, the industry’s Sandy Bridge notebook announcements were postponed while everybody sorted out whether it was OK to use faulty chipsets in notebooks that were never going to use the faulty ports anyway. Which was compounded by the OEM fear that customers would forever feel cheated if they got a perfectly working but otherwise flawed chipset. Discretion said “wait for the B3 stepping”, and that’s largely what happened.
  4. Getting Back to Normal – the complicated process by OEMs of phasing out last years’s products and ramping up Sandy Bridge products and inventories was disrupted by the chipset hiccup. Then, the Japan earthquake hit three weeks from the end of quarter. While there are scant facts about actual electronic supply outages as of today, my channel checks indicate some internal cannibalization in order to maintain critical parts inventories (e.g., shunting NAND flash chips destined for $49 iPods to the $829 iPad 2-wireless assembly line).

Of the above factors, tablets are without doubt an ongoing drag on PC sales. And the mongoose-on-cobra focus of the desktop and notebook suppliers. Another story for another day.

The Sandy Bridge anticipation and chipset hiccup are one time factors. Intel expects good things from Ivy Bridge, next January’s new processor line, and it can be expected to plan better for success. It goes without saying that many heads will roll if there is another chipset problem, or any silicon QC problem anytime soon.

Getting back to normal is ongoing for at least eight more weeks into Q2, but my crystal ball says no industry-wide supply impact will ultimately come from the Japan earthquake.

I see Q2, a seasonally better quarter than Q1, getting wind in its sails due to postponed Sandy Bridge sales being consummated. Moreover, the release in Q1 of Sandy Bridge for business (e.g., vPro chips) and Microsoft’s Windows 7 service pack 1 — on top of improving global economic conditions — unleashes a long-overdue cycle of enterprise PC upgrades.

Dell computer factory


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