The sky is falling – again

Posted: 08.14.06

chickenOnce again, during the seasonal second quarter PC sales have slowed. And just as seasonal as this yearly regular slowdown is the panic that grips Wall Street, as they seem to discover, like a pack of ducks for the first time, that the market doesn’t always go up, month after month. Imagine—the PC market is like the stock market: it has ups and downs. That seems to be a really confounding concept for Wall Street. And as I write this, it occurs to me that I have written this before. If I weren’t so lazy I’d go look for those diatribes (Chicken Little image courtesy Disney).

I did look a few things up. For example:

• July 20, 2001—Market research company IDC reported that global PC shipments declined by 2% in the second quarter of this year from the same period last year, logging the first year-over-year quarterly decline ever.

• July 18, 2002—PC market recovery is slow to materialize. IDC says businesses still investing cautiously as consumer demand softens.

• March 14, 2003—International Data Corp. lowered its 2003 forecast for growth in shipments of personal com-puters to 6.9% from 8.3% over 2002, citing slower spend-ing in government and education markets.

• October 19, 2004—In its quarterly update on the PC business, research outfit Gartner said that global PC shipments rose by 9.7% in the three months to September 2004, compared to a year ago, slightly behind its forecasts. It blamed the weaker-than-expected shipment levels on the U.S., where growth amounted to just 5%—versus an 8% forecast.

• February 18, 2005—Gartner said the market of personal computers would grow only 9% year-over-year in 2005, down from 11% in 2004.

• March 9, 2006—Shipments of PCs worldwide will grow at a slower pace in 2006 than in 2005, partly because the replacement cycle for desktop PCs has hit a peak, Gartner said.

Now if you look at graphics shipments, which of course we do every quarter, here’s what our records indicate (Figure 1).

Figure 1. Clear indication of the abysmal failure and decline of the PC market.

In the past five years, PC graphics shipments have gone from 149 million to 269 million, not quite a doubling. Now that’s sure something to be scared about. I can see why Wall Street and big-shot “analysts” are worried, and have been every year—it’s obvious the PC market is dead. Time to move our investments to, ah, let’s see, the automotive market? The real estate market, the, pharmaceutical market? Hmmm, they’ve haven’t done that well over time have they? A few years of a pop, but long term, well, spotty is the word that gets used, I think.

The U.S. GDP grew from 10,033 to 13,042, a CAGR of 6%, which by any measure isn’t bad; in fact, it’s damn good, and it shows how robust the PC graphics market has been in comparison.

And how about that housing market? Robert Shiller’s plot of U.S. home -prices, population, building costs, and bond yields (from Irrational Exuberance, 2d ed. Princeton University Press) shows that inflation-adjusted U.S. home prices increased 0.4% per year from 1890–2004, and 0.7% per year from 1940–2004, whereas U.S. census data from 1940–2004 shows that the self-assessed value increased 2% per year. Two percent, gee, that’s, ah, well, less than bank interest (before inflation adjustments).

And how come if the PC market is so crappy, there are so many billionaires in it? How many billionaires can the auto industry or any other industry (except maybe big oil) boast about?

And lest we forget, Walmart (which has one of the world’s biggest billionaires) sells a hellofa lot of PCs (much to NPD’s consternation because Walmart won’t share the data).

myopiaEven with all the insider and special information the vaunted and despised hedge funds have, they too are worried about the “vitality” of the PC market. I think the problem on Wall Street is there aren’t enough opticians, and all those pin-stripe-suited, café latte–sipping, racket-ball-playing, hard-driving BMW owners are suffering from contagious myopia.