To The Moon

The explosive growth in PC shipments that took hold when people around the world sought refuge in their homes for nearly two years has finally sputtered out. Need proof?

$Micron Technology(MU)$Bearishchipmaker Micron (MU) warned about flagging PC demand and a "challenging market." The news comes after Nvidia (NVDA) pre-announced its earnings on Monday, giving Wall Street the heads up that its second quarter revenue will be just $6.7 billion compared to prior estimates of $8.1 billion.

Earnings from Intel (INTC), AMD (AMD), and Microsoft (MSFT) also pointed to a widespread slowdown in the PC market. Revenue dropped 25% for Intel’s Client Computer Group, which includes sales of PCs that use Intel chips, on weakening demand for PCs.

AMD CEO Lisa Su said the chipmaker has a “more conservative outlook on the PC business,” in the coming quarters. And Microsoft asserted that production slowdowns and a deteriorating PC market caused a $300 million hit to its Windows OEM business, which supplies Windows to PC manufacturers.

$NVIDIA Corp(NVDA)$$NVIDIA Corp(NVDA)$Nvidia pre-announced earnings on Monday, giving shareholders and analysts a better sense of how much the PC industry has fallen since the height of the pandemic. (Photo by Justin Sullivan/Getty Images)

In other words, we’ve reached the end of a PC boom that research firm IDC says saw double-digit, year-over-year growth at its height. Am I surprised? Not so much. The PC pandemic bubble was destined to burst.

Prior to 2020, PC sales were either down or relatively flat for years. It took a global pandemic to return the industry to strong quarter-over-quarter growth, as people realized they needed more than just a smartphone to work and learn from home. Now, just as consumers are going back out again, they’re relying more on their smartphones and tablets.

There is, however, a sliver of hope for PCs. The industry, Gartner research director Mikako Kitagawa explained, should eventually return to growth. It will just take longer than you might expect.

he PC industry will return to growth, but not anytime soon

Prior to the pandemic and before we communed with our couches for months on end, the PC industry was already hurting. According to IDC, worldwide full-year PC shipments grew by just 2.7% in 2019. At the time, even that tiny amount of growth was considered a minor miracle. The last time the industry saw full-year year-over-year growth before that was way back in 2011.

Then the pandemic hit. The world went into lockdown mode (for the most part), and everyone from kindergarteners to office workers needed laptops and desktops to get by.

From there, the PC industry exploded. According to IDC, Q3 2020 global PC shipments increased by 14.6% year-over-year to 81.3 million units. In Q4 2020, shipments grew 26.1% year-over-year to 91.6 million units.

Since then, though, sales have fallen back down to Earth, with Gartner reporting a precipitous 12.6% decline in shipments in Q2 2022.

“The boom is definitely over, so we will not see that double digit growth,” Kitagawa said. “This year in 2022, we are expecting around a 9% decline compared to [2021].”

The market, she explained, will return to growth sometime in the next five years. But when it does, it will likely be in the low single digits rather than the double-digit expansion the industry saw in the middle of the pandemic.

For now, businesses are buying laptops to outfit their workers who are transitioning to hybrid or work-from-home models. But that will slow as well, as those companies fulfill their needs.

As for consumers, many of them already have relatively new computers that haven't broken yet. Consider the fact that that people can hold on to a computer for five years or more, and that gives consumers even less of a reason to rush out and scoop up a new laptop or desktop.

Despite the decline, however, the explosion in pandemic sales did help the industry in one big way: it expanded its install base.

PC users will need new systems…eventually

While PC sales are declining year-over-year, the rapid expansion during the pandemic means that the overall number of PC users has grown. As a result, while sales will dip below their pandemic highs, Kitagawa says they won’t fall below their pre-pandemic levels.

AMD CEO Lisa Su says the company is taking a more conservative approach to PC sales. (REUTERS/Steve Marcus)

“[Consumers] don't buy new PCs because they have new ones now,” Kitagawa explained. “But in a couple of years, they are going to buy new PCs because we believe that the consumer behavior of using PCs for their daily life is not going to change.”

Kitagawa points to the fact that consumers have grown more accustomed to using PCs for activities — whether that’s joining exercise classes remotely or staying in touch with friends and family via video chat apps. Gamers, of course, will also continue to buy new PCs.

Others, however, say the market is at risk of falling off entirely as consumers go back to using their smartphones and tablets for everyday tasks. Moreover, in light of a potential recession, consumers might be loath to spend their hard-earned cash on a new computer.

In that case, Americans might hold on to those old PCs for a while. In that case, the end of the pandemic PC boom could turn into a years-long slowdown that inflicts even more pain on the computer industry.