Despite a robust German economy, the German PC market contracted more strongly than anticipated in the first quarter of 2011. Affected by high levels of inventory carried over from 4Q10, coupled with weak consumer demand and cautious commercial investments, PC shipments contracted by 10.8% year-on-year in 1Q11, versus forecast at +4.9%.
The slowdown continued in the consumer PC market; however, the deceleration was greater than anticipated, as consumer PC shipments plunged by 22.8% year-on-year. Inventory build-up, which accumulated in the channel due to a weak performance in the second half of 2010, further deteriorated following poor “sell out” during the Christmas period. As a result, extremely high inventory levels were carried over into 1Q11 which constrained new “sell in” across all product categories. As channel players focused on existing stock depletion, PC vendors were forced to resort to costly stock clearance measures, offering aggressive price points across the board. However, despite plentiful attractive price promotions, consumer demand remained lackluster and did not suffice to absorb the accumulated inventory.
Weakness in consumer spending was fuelled by the impact from the fast-growing popularity of smartphones and media tablets, which continued to divert consumers- attention and budgets away from PCs. The most impacted product category remained mini notebooks, but sales of mainstream notebooks were also affected as consumers further postponed their notebook renewals.
The commercial segment remained positive in 1Q11, albeit at moderate levels, posting 6.4% growth year-on year. Commercial growth continued to be driven by previously postponed PC renewals in the enterprise space. Boosted by Windows 7 roll outs, recovering enterprise demand helped sustain commercial desktop volumes, however transition to mobility continues to gain momentum. Still remaining cautious and selective, the SMB segment recorded more moderate growth, compared to enterprise. Although a release of previously postponed IT investments accelerated in the midmarket, smaller companies remained affected by the economic pressure and uncertainty, hence PC life cycles are prolonged and renewals delayed, impacting portables in particular.
Vendor Highlights
HP achieved leadership and posted 2.4% growth in 1Q11. The vendor outgrew the total PC market in Germany due to a strong performance in the commercial segment. However, slower retail sales, high inventory carry-over from 4Q10, and continuing cannibalization from media tablets resulted in a sharp drop in the consumer market. Despite aggressive tactics, HP moved down in ranking in the consumer segment, as demand remained weak.
Acer returned to second place due to being greatly impacted by the consumer market slowdown. Acer was constrained by high levels of inventory, particularly in the retail channel, and recorded a sharp drop, posting a decline of 33.3% in total shipments. Additionally, the vendor suffered from a strong decline in mini notebook demand, which contributed to significant volume contraction compared with the same quarter last year.
Asus remained in third place, consolidating market share. Although the vendor struggled from the inventory build-up in the retail channel and posted negative results, its consumer performance was better than the total PC market. Due to increased efforts in the SMB space, commercial performance remained positive, although not sufficient to offset the negative consumer performance. Asus-s results in 1Q11 were additionally constrained by an unfavorable year-on-year comparison.
Dell posted a decline of 14.5%, being largely impacted by the downturn in the consumer market. On the other hand, slower than expected commercial demand in Germany and strong competition from HP and Lenovo had a negative impact on the vendor-s performance in the commercial segment.
Medion moved up to fifth place, benefiting from a more favorable year-on-year comparison. The vendor leveraged from its go-to-market strategy, not being fully dependant on specialized PC retail, and continued its successful partnership with food retailer Aldi.
The German PC market is expected to remain constrained in 2011, directly impacted by sustained high levels of stock in the distribution and retail channels. Although the inventory situation has improved compared to the beginning of the year, excess stock will continue to prevent stronger sell-in at least in 2Q11, particularly for consumer notebooks. The consumer market is likely to return to flat growth in 2H11, benefiting from a more favorable year-on-year comparison. However the budget shift to media tablets and smartphones is expected to continue and even intensify during the Christmas period, adversely impacting demand for consumer PCs.
Although positive trends are expected to continue in the commercial segment, IDC lowered its forecast as the recovery remains gradual. The enterprise sector will continue to drive growth, benefiting from previously postponed renewals coupled with Windows 7 rollouts across the automotive, petrochemical, and financial sectors in particular. Recovery in the SMB segment remains sluggish, as companies are still struggling from the effects of the crisis. Therefore, IT spending is expected to remain constrained, which will lead to further delays in PC renewals. Although investments continue in the midmarket, the lower end of the SMB space remains cautious and mirrors the current negative consumer trends. The outlook for the German public sector remains constrained by fiscal consolidation plans being implemented in 2011.
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