Monday, January 13, 2014

Economics of the PC Market

Charles Arthur has an interesting, well-researched piece at The Guardian detailing the terrible economics faced by makers of Windows PCs, and the resulting threat to Microsoft posed by Chromebooks:
The PC business is in a slump which has seen year-on-year shipments (and so sales) of Windows PCs fall for five (imminently, six) quarters in a row, after seven quarters where they barely grew by more than 2%.
And it's not only growth that's fallen. Analysis by the Guardian suggests that as well as falling sales, the biggest PC manufacturers now have to contend with falling prices and dwindling margins on the equipment they sell.
In the first quarter of 2010, the weighted average profit per PC was $15.71 - a 2.55% margin. (So the overall per-PC cost of manufacture, sales and marketing was just under $599.)
So much so that by the third quarter of 2013, the weighted average profit had fallen to $14.87. That actually marks an improvement in margin, to 2.73%
It has been true for a long time that Microsoft made more money from each Windows PC than the makers.
The most obvious beneficiary of every Windows PC sale is Microsoft. It gets revenue from the sale of the Windows licence - but it then captures extra value through the high likelihood that even consumer buyers of PCs will buy its Office suite, and probably buy another version of Windows at some point in that computer's life. It's the reason why Microsoft is so fabulously profitable, while PC manufacturers are struggling.
The makers used to get enough to live on. Now they don't. Selling Chromebooks is a way of cutting Microsoft out of the picture.


David. said...

The fallout from the collapse of the PC market continues. Intel is shuttering a brand-new fab because "Intel is likely to have full capacity with its existing semi-conductor fabs in Arizona, Oregon, New Mexico, Ireland and Israel, as beancounters continue to spell out doom and gloom in the PC market".

David. said...

Microsoft has been forced to cut the price of Windows 8.1 by 70% for tables and PCs that cost less than $250 to avoid being shut out of the market by Android and Chromebooks.

David. said...

Even the Motley Fool has figured this out.