PC market dying? Apple still minting money in it
Despite a lower sales volume, the iPad maker's profit is far more than its competitors in the sector.
With the rise in popularity of mobile computing devices, the PC industry's sales have collapsed in recent years. Just last week, market research firm IDC reported that in the first quarter of 2013, that PC unit sales slid 13.9% year-over-year.
Minyanville's own Michael Comeau has described the decline as the "toasterization" of the PC, where the PC has gone from being a source of interest in and of itself, to being, like a toaster, merely a means to an end -- a device that allows consumers to edit photos or access Facebook (FB) and Netflix (NFLX).
PC giants like Hewlett-Packard (HPQ) and Dell (DELL) have taken especially big hits in this era, but Apple's (AAPL) iMacs and Macbooks continue to rake in robust profits, according to a report from industry analysis firm Asymco.
As seen from the charts, even though Apple's share of the PC market was smaller than the top five -- Dell, HP, Lenovo (LNVGY), Acer (ASIYF) and Asus (AKCPF) -- in the last quarter of 2012, it topped them all in terms of operating profit, thanks to its outsized margins.
Of course, the key difference between Apple and its rivals in the PC market is that Apple computers come bundled with the company's own operating system, whereas original equipment manufacturers (OEM) like HP rely on Microsoft's (MSFT) Windows operating system. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
So while Microsoft might still be profiting off licensing fees even as PC sales fall, OEMs that have engaged in a race to the bottom have seen net income slide thanks both to the unpopularity of Windows 8 and the larger secular decline of the industry.
Aysmco's Horace Dediu writes:
The real problem for the PC vendors is not that they have such low margins -- they've had low margins for decades. It's that the volumes which "made up for" low margins are disappearing. Apple is not immune to a gradual erosion of Mac volumes, but they have positioned themselves for growth with devices and content commerce and services. They have essentially "escaped" PCs and indeed caused the need to escape in the first place.
The problem is what could the others do? It seems all they can do is depend on Microsoft getting their strategy right.
For PC makers, the problem will only get worse: In a research note to investors, Deutsche Bank analyst Chris Whitmore said that he expects PC sales to drop another 8% this year, and 5% in 2014.
According to AppleInsider, Whitmore also pointed out that the newly private Dell would lower margins in order to gain market share, which could result in further profit erosions for HP and the other Windows PC makers as well.
As for Apple, even though it accounted for 45% of all PC operating profit in the fourth quarter of 2012, Wall Street apparently still isn't satisfied: Apple's share price continues to hover near its 52-week low.
Ahead of its quarterly earnings results next week, Apple has also had its price target cut to $650 from $600 by Stifel and to $550 from $575 by Mizhuho.
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