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.

By Minyanville.com Apr 17, 2013 11:29AM

Dollar sign on keyboard CorbisWith 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.

Source: 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.

More from Minyanville

Apr 17, 2013 12:01PM
The PC market isn't dying, it's changing. Folks don't have to buy multiple PC when they can buy Tablets and the like to use the WEB. The PC/Notebook will remain the workhorse for users for quite sometime. How much can you actually get done on something with a screen, 7 inches or smaller.
Apr 17, 2013 2:44PM
Personal Computers, PC's, are not dying they're just getting smaller and more mobile. In fact the PC market is exploding and the use of Windows PC's like Windows phones and tablets will start to grow faster then Android devices as soon as Intel's Atoms Inside tick tock strategy explodes in the 2nd half of 2013.  Why do you think Intel's up today when the market's down 150 pts? It's because smart people know what's going to happen to smart devices in the future just like it happen to PC's that Apple invented in the past.
Apr 17, 2013 1:50PM
Apple may maintain their margins on the Macs, however they will have to lower the margins on iPhones and iPads or continue to loose a substantial market share to tablets and smart phones using Android IOS.
Apr 17, 2013 1:33PM
"PC market dying? Apple still minting money in it." It would appear that just the Windows 8 PC market is dying. And Windows RT.

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