Demand for personal computers still erratic, outlook unstable

SAN FRANCISCO/SEATTLE Sat Jul 12, 2014 9:29am IST

A woman browses web at an Internet cafe in Madrid May 23, 2008. REUTERS/Andrea Comas/Files

A woman browses web at an Internet cafe in Madrid May 23, 2008.

Credit: Reuters/Andrea Comas/Files

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SAN FRANCISCO/SEATTLE (Reuters) - Improved demand for personal computers after years of declines may not last as emerging markets remain weak and recent corporate upgrades in the United States and Europe may prove fleeting.

The latest sign that the PC market's stability could be short-lived came from technology distributor Synnex Corp. Its shares have slumped 16 percent since Chief Executive Officer Kevin Murai warned earlier in July that increased demand was already waning from companies buying new computers to upgrade their operating systems after Microsoft Corp stopped supporting Windows XP in April.

Investors have pushed shares in PC mainstays Microsoft and Intel Corp and parts suppliers such as Seagate and Western Digital Corp to decade- or record-highs, partly on bets that the global slump in PC demand that began with Apple Inc's launch of the iPad in 2010 may have hit bottom.

But detractors point out the story is far from certain. Demand is still falling in emerging markets such as China, crucial to any sustained comeback. While up to a quarter of the world's PCs still employ the 13-year-old Windows XP, it is unclear how many will choose tablets or Apple and Google Inc "Chrome" computers over PCs, rather than upgrade to newer Windows versions.

"If this is only a couple quarters of flat growth and all of a sudden we go down to 5 and 7 percent year-over-year declines again, then people are going to get nervous and say we don’t know where the bottom is," said Chuck Jones, founder of research firm Sand Hill Insights.

Intel reports its second-quarter results on Tuesday, while Microsoft posts earnings on July 22 and both are likely to shed more light on the state of the global PC market. Seagate, which reports on July 17 and Western Digital, which gives its results on July 30, could fill in the picture further.

BETTER SENTIMENT

Optimism on Wall Street has grown since Intel unexpectedly raised its quarterly and annual revenue outlooks in June, sending its shares to levels not seen in a decade. Microsoft's stock is at highs last seen in 2000.

Shipments of PCs were flat in the June quarter, according to research firm Gartner, a better-than-expected result.

"Market feedback on the PC space is much better than 18 months ago," memory chipmaker Micron Technology Inc President Mark Adams told Reuters in June. "We've been talking and planning about the back half of the year with our customers and they’re pretty focused on making sure we don’t take away (DRAM) capacity." DRAM chips are widely used in PCs.

Global tablet shipments in the March quarter fell for the first time ever, according to NPD DisplaySearch. U.S. consumers who once thought they would get by with a tablet are gravitating toward cheap laptops.

"The PC is not dead. There is a healthy market under there," FBR analyst Chris Rolland said, pointing to a gradually improving U.S. economy.

But in China and other developing countries, once major growth engines for the PC industry, shipments of laptops are still falling as consumers choose tablets. It is unclear to what extent people in developing countries will eventually follow wealthier U.S. consumers back to buying both tablets and laptops, said IDC analyst Loren Loverde.

Even Microsoft no longer sounds as confident in the PC's prospects. In a recent TV commercial, it described its newest Surface Pro as a "tablet that can replace your laptop," a major shift for a company that still depends on PCs for a sizeable amount of revenue.

(Reporting by Noel Randewich and Bill Rigby; Editing by Lisa Shumaker)

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