Demand Slump Could Put PC Makers' Margins Under Further Pressure -- Market Insight

Commentary by Adrià Calatayud

With no end in sight for a lull in personal-computer demand, competition for market share is heating up, which could lead to further pressure on manufacturers' profit margins in the near term.

The three largest PC makers by market share--Lenovo Group Ltd., HP Inc. and Dell Technologies Inc.--have flagged a competitive pricing environment during recent earnings calls. Worldwide shipments of PCs dropped about 20% in the third quarter from a year earlier, the steepest decline in more than two decades, according to data from research firm Gartner. HP and Dell have said they expect PC demand weakness to stretch into next year.

Despite shipping fewer units, Lenovo's share of the global PC market rose to 25.2% in the third quarter from 23.9% a year earlier, while HP's share fell to 18.7% from 20.9% and Dell's to 17.7% from 18%, Gartner data shows. Lenovo's gain came at a cost: the company said earlier this month that operating margins at the unit housing its PC business have been under pressure of late.

HP said Tuesday it would reduce up to nearly 10% of its workforce as part of a three-year restructuring, a move that Chief Executive Enrique Lores said would make the company more competitive and help it win market share in 2023. HP said the operating margin of its PC business fell two percentage points to 4.5% in the quarter ended Oct. 31, and it is likely to remain below the company's long-term target range of 5% to 7% through at least the first half of the year that began Nov. 1.

Dell, which has a greater exposure to the corporate market relative to the more volatile consumer market, managed to improve the operating margin of its PC unit last quarter. Its margin could still be at risk, though, given that Co-Chief Operating Officer Chuck Whitten said the company has seen more aggressive pricing in the commercial segment as demand slowed.

Market Insights are commentary that is independent of the news coverage by reporters at The Wall Street Journal.

Write to Adrià Calatayud at adria.calatayud@dowjones.com

(END) Dow Jones Newswires

November 23, 2022 10:57 ET (15:57 GMT)

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