Wall Street Beat: Weak PC sales rain on tech stocks' parade

After leading markets to new highs Wednesday, tech closes down again

Just as tech stocks were starting to rise this week, dismal PC sales reports for the first quarter burst the very short-lived bubble, causing shares of IT companies to fall back to earth Thursday.

As market indices hit milestone after milestone this year, PC stocks have lagged behind. This week, however, tech stocks climbed and led the markets to record highs Wednesday. After the markets closed, though, the bad news came: both Gartner and IDC reported a nosedive in first quarter PC sales.

IDC said the 13.9 percent year-over-year drop in PC sales was the worst decline it has seen since it started tracking the PC market in 1994. Both Gartner and IDC noted it was the fourth consecutive quarter of declining PC sales.

On Thursday, as the Dow Jones Industrial Average and the Standard and Poor's 500 index hit yet new nominal (not adjusted for inflation) highs, the Nasdaq Computer Index dropped 0.79 percent. Some of the biggest losers were companies with exposure to the PC market. Hewlett-Packard dropped US$1.44 to $20.88, Microsoft fell $1.35 to $28.93 and Intel declined $0.43 to $21.83.

In its report, IDC said global PC shipments totaled 76.3 million units in the first quarter, down 13.9 percent year over year and worse than the forecast decline of 7.7 percent.

On its part, Gartner said PC shipments totaled 79.2 million units, an 11.2 percent decline and below 80 million units for the first time since the second quarter of 2009.

"Even emerging markets, where PC penetration is low, are not expected to be a strong growth area for PC vendors," said Mikako Kitagawa, principal analyst at Gartner, in the report.

Windows 8 has hurt the PC market, according to Bob O'Donnell, an IDC analyst. "While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button, and the costs associated with touch have made PCs a less attractive alternative to dedicated tablets and other competitive devices," O'Donnell said, in the IDC report.

IDC also attributed the drop to PC buyers' unease with HP, which has undergone various leadership and strategy changes, and with Dell, which is weighing a controversial plan to go private.

Heading into earnings season, the weak PC data means potential trouble for HP, Intel and Advanced Micro Devices, according to Sterne Agee analyst Vijay Rakesh ."Even after the weak February, we are lowering our estimates to represent continued challenges in the PC market," Rakesh wrote in a research note Thursday.

Weak PC sales could continue into the second quarter with, for example, notebook shipments flat to down by 2 percent to 5 percent, Rakesh said.

Looking at the entire hardware market, though, some industry analysts see a silver lining: While the PC market implodes, other computing devices such as tablets and smartphones are selling well.

Despite a "miserable" year for semiconductors in 2012, smartphones and tablets will help drive growth in 2013, according to a research report from IHS.

Global semiconductor revenue in 2012 declined by 2.2 percent from 2011, according to final results from an IHS iSuppli report, issued Wednesday. There were a few bright spots, however.

"Robust growth in smartphones and media tablets was key to driving growth opportunities for logic ASICs, CMOS image sensors and sensors essential to enabling new and attractive features in the exciting wireless market," said Dale Ford, senior director at IHS, in the report. Growth in CMOS image sensors hit 38.8 percent, followed by logic ASICs at 19.0 percent.

Some industry analysts are taking a broad view. "We are watching the resizing of the computer industry into different slices. Yesterday it was just one big pie with two slices, desktops and notebooks," noted tech analyst Jeff Kagan, in an email. "The computer industry is not going away. It's just changing, resizing. "

This sort of positive spin on tech will be put to the test next week, when tech bellwethers including IBM, Intel, AMD, Google, Yahoo and Microsoft report earnings.

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Marc Ferranti

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