Hello.
It seems that life goes on as usual and almost nothing changes in the world around us. We have the goods we need on the shelves, even if their prices often rise much faster than our income. The whole world is getting poorer, and the purchasing power of people is falling, such is the situation in the USA, Europe, Asia and, of course, in Russia. The trend can be called global, there are no exceptions.
One of the key products, if you will, the means of production, today is the computer. No company can do without computers in their work, and no matter what they are used for, there is always office work, accounting, communication in the mail or work chats. I don’t know of any company that doesn’t have computers at all, only their quantity and quality differ. To some extent, computers, more precisely, their sales, can serve as an indirect indicator of economic activity in different countries, of how people use these tools. It would be a mistake to consider selling computers directly, not taking into account their lifespan. After all, we are interested in the number of computers in the hands of companies and people, that is, the number of working computers. To understand the size of the audience, suffice it to say that Microsoft claims to have 1.6 billion computers running Windows of different versions at the beginning of 2023. If you count the market for alternative operating systems, the number will be higher.
Let’s take a look at computer sales in the context of recent years.
The rapid growth in sales occurred since the 90s, computers became more powerful, cheaper, lighter and became an indispensable attribute of modern life. In the 2000s, many people began to associate computers with laptops, the latter evolved in a short time, many different form factors appeared. The market grew rapidly until the second decade, and then sales began to slowly slide down. The reason for this is obvious: computers have become extremely reliable, their service life has increased dramatically. And this applies to both inexpensive models and devices of a high price class.
A great example would be laptops from 2012, I have a MacBook Air from that year, as well as a Lenovo ThinkPad X1 Carbon. The first was bought for a thousand something dollars, the second cost more than three thousand. Such different classes of devices, but both laptops feel great today, no replacements or upgrades have occurred over the years. And if the MacBook Air lives with relatives and is not used very actively, then the ThinkPad works almost every day, this is my daughter’s computer. It is almost always in the apartment, no constant traveling, mains powered. A sort of replacement for a desktop computer.
I remember how my friends looked at me when I bought a ThinkPad on a trip and said that it was for first graders. I heard that I was pampering a child, the capabilities of a computer were superfluous and not needed, there were a lot of arguments. But I had a simple argument that I was not rich enough to buy cheap things. I decided to buy a laptop after a trip to the Lenovo factory, when I saw with my own eyes what can be done with this model – it turned out that almost everything. Enhanced durability, drop resistance, touch screen and more. The most for a child, especially if you buy a laptop for many years. And so it happened, the computer continues to work as if nothing had happened, there are no problems with memory, speed or other issues. A familiar computer that serves as a tool, and not as a means to measure the generations of the processor and the virtual coolness of the owner.
For a little over ten years, the computer has justified itself in every sense, a profitable and pleasant purchase. But the same MacBook Air, in general, performs its tasks, although it became obsolete faster, brakes and other troubles appeared. But this is a product of a different class, and this behavior was expected.
The point of my examples is that computers have become the modern analogue of a refrigerator, they work to the bitter end, and the only reason for replacement is a failure. They don’t have the wear and tear that smartphones have, so computers last a long, long time. And it drops their sales year by year. As soon as the quality of computers became high, it was no longer necessary to buy them often. It must have happened sometime around 2010.
An abnormal rise in sales occurred in 2020, thanks to the pandemic and the fact that many people have switched to remote work, and children to distance learning. Buying a computer has become a necessity, the PC market has experienced an unimaginable rise. The black swan flew in, no one could predict such an upward movement of the market in advance. But then a natural rollback began, already in 2022, sales fell to the level of 2008. And that was just the beginning of the fall, let’s take a look at the IDC report for the first quarter of 2023.
The market has fallen by a third, and it looks like a disaster. In warehouses, there are stocks of computers and laptops for several months of sales, production practically does not stop, and these stocks do not have time to clear. Let’s add the rise in prices, which automatically repels buyers, retail and wholesale companies face a serious problem.
The worst things are with expensive devices, even if they last longer, as in the ThinkPad or MacBook example above. The drop in Apple sales was 40%, the company is falling faster than the market. And about the same can be expected from iPhone sales, the analogy here is more than appropriate.
At the beginning of 2023, Apple stopped the production of M2 processors at the TSMC factory, until the end of February these processors were simply not released. From the end of February, production was launched again, but its volume is two times lower year on year. The reason is exactly the same overstocking of channels, there is no demand for computers in such a volume. Plus, there is no demand for such expensive computers, people are reconsidering their preferences.
It should be noted that the B2B segment of the market is huge, and here the crisis dictates its own rules. Many companies at the end of 2022 carried out mass layoffs of employees (the bill went to millions of people across the planet). After the dismissal, as a rule, there remains a technique that can be used by new employees or those who remain. There was no reason to buy computers, the B2B segment has declined sharply. By the beginning of 2023, the crisis began to be felt more strongly, corporate programs for the purchase of computers for employees are being canceled even in prosperous corporations, everyone is oriented towards savings. That is, in 2023 this factor will have an even greater influence on the market, sales will decline more strongly.
Manufacturers face an impossible task: to continue to produce new models and at the same time get rid of inventory. Given that the new models in practice differ little from the old ones, but at the same time cost 20-25 percent more, the task becomes even more complicated. Each company will solve it in its own way, someone will start discounting old stocks, someone will try to hold on to the last. Calling it a price war is hard, but everyone without exception will lose money due to a sharp change in demand.
Even if we assume that the first quarter showed an average drop and it does not accelerate, then by the end of 2023 we can get total sales equal to 200 million computers. And this is a rollback to the level of the market twenty years ago. Moreover, there are simply no reasons for its subsequent rapid recovery, I do not see them even in the most optimistic scenario.
In practice, this means that the leapfrog with prices will occur for several quarters, then prices will inevitably go up (yes, up again, the average growth will be 20%). And this will again crush retail sales, remove such an issue as obsolescence of equipment. Most consumers will become like my daughter, they will use their computers for a long, long time. Moreover, in the case of her daughter, rationality prevails, she simply has enough of what a laptop can do, and does not need any features that new computers provide.
Component suppliers are in big trouble, they’re under a lot of pressure. Samsung’s first quarter report should be very poor, with the company’s profits expected to drop by 24 times. The reason is the lack of a sufficient number of buyers of memory and other components. That is, this is also a sign indicating a decline in production, and in each of the regions. A kind of canary in the mine, which shows the lack of normalization of production in 2023, it is impossible to wait for the situation to be corrected.
Manufacturers of DRAM memory in the fourth quarter of 2022 faced a drop in sales by a third, the magnitude of the disaster is comparable to the last quarter of 2008, the crisis is considered the most serious in recent history. But this time we are starting with different numbers, and the problems will grow. Memory makers have responded by cutting prices, trying to clear out stocks and cut back on production. In the fourth quarter, prices fell on average by a third, in the first quarter – by another 10-15%. Reducing production is the only way to improve the situation, but it will lead to higher prices, it is unprofitable to keep them at such a low level. And this is an anticipation of the situation in the electronics market, where they sell ready-made products, the same computers.
The situation on the electronics market is a reflection of the general world situation; there is no quick and painless way out of it. Economic crises affect both large and small countries, their scale differs. Through globalization, manufacturers have focused on selling worldwide, now they are beginning to suffer from this, their sales are no longer guaranteed and are not protected in any way. If earlier there were local crises in individual countries and they did not affect the whole picture, now it is one big crisis for everyone. And so the market will fall, and it does it very quickly. It will be interesting to look at the reports of research companies on the smartphone market in the first quarter of 2023, I think that many interesting discoveries await us there.