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How the PC Market Is Subduing the Prospects for Microsoft’s MPC Segment

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Jul. 24 2017, Updated 10:38 a.m. ET

2Q17 marked 11 straight quarters of decline in shipments

Earlier in this series, we discussed analysts’ expectations from Microsoft’s (MSFT) fiscal 4Q17 results. Although Microsoft is aggressively pursuing the cloud space to achieve growth, it’s still dependent on the PC space. Let’s look into Microsoft’s MPC segment, which derives the majority of its revenues from the PC space. In fiscal 4Q17, its revenues fell 2.0% to $8.8 billion, primarily due to lower phone revenues.

Gartner’s recent estimates, released earlier this week, show that global PC shipments fell 4.3% to ~63.9 million units in 2Q17. Calendar 2Q17 marked the 11th straight quarter of a fall in PC shipments. The report noted that shipments in 2Q17 “were the lowest quarter volume since 2007.” 

Gartner believes that the PC market is currently in the middle of a five-year slump. In the US, PC shipments fell 5.7% to 14.0 million units in 2Q17. Weak consumer demand in the PC space was responsible for this decline.

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Factors impacting the PC market

Sharing the factors that impacted the PC market, Mikako Kitagawa, principal analyst at Gartner, said, “Higher PC prices due to the impact of component shortages for DRAM, solid state drives (SSDs) and LCD panels had a pronounced negative impact on PC demand in the second quarter of 2017.”

DRAM (dynamic random access memory) demand is hard to ascertain as memory industry players can’t control it. It is governed by end-consumer demand, which is difficult to predict.

This memory shortage pushed PC prices up, and this scenario is likely to continue in the near future. Also, PC manufacturers are raising prices to garner more profits in the shrinking PC market. The top five vendors were Hewlett-Packard (HPQ), Lenovo (LNVGY), Dell, Apple (AAPL), and Asus in the PC space. Later in this series, we’ll talk about their positions and shipments in the PC space.

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