Gartner Forecasts Ultramobile Premium Margins to Grow by Up to 25% Despite PC Market Downturn

Gartner Inc. said that despite the worldwide PC market recording its lowest quarterly growth rate ever in the first quarter of 2016, there are several profit opportunities for PC vendors.

“The PC is no longer a user’s first or only choice for accessing the internet,” said Meike Escherich, research director at Gartner. “Over the past five years, global shipments of traditional PCs, such as desktops and notebooks, have declined from 343 million units in 2012 to an estimated 232 million units in 2016, and revenue has shrunk from $219 billion in 2012 to $122 billion in 2016.”

Many vendors in the middle tier of the PC ecosystem are struggling. "Their presence is either shrinking dramatically across regions and countries or withdrawing entirely from the PC market," Escherich said. In the middle, Acer, Fujitsu, Samsung, Sony, and Toshiba have lost 10.5% of their market share since 2011. “Dell, HP and Lenovo increased their market share in the first quarter of 2016, but declined compared to the same period last year,” he added.

▲Attendees are looking at an ultra-light laptop at the WIS 2016 exhibition hall.

Regional markets are also changing. Low oil prices and political uncertainty have contributed to economic contractions in Brazil and Russia, shifting them from growth leaders to market laggards. While the US, China, Germany, the UK, and Japan remain the top five countries in terms of shipment volume, consumers in these markets are reducing the number of PCs per household.

“Nevertheless, PCs still have advantages that smartphones and tablets cannot offer, such as larger screens, ergonomic keyboards, more storage, and more powerful computer processors,” said Tracy Tsai, research director at Gartner. “With market oversaturation and declining average selling prices (ASPs), PC vendors must focus on optimizing profitability to sustain growth.”

Premium ultramobile sales expected to grow this year
The gaming PC segment will deliver long-term profitability.

Although the PC market is declining, the ultramobile premium segment is expected to see sales growth this year if current trends continue, and is the only segment expected to actually see growth. This year, revenue is expected to reach $34.6 billion, a 16% increase over the previous year. Gartner predicts that the ultramobile premium segment will become the largest segment by revenue in 2019, reaching approximately $57.6 billion.

"The ultramobile premium market is more profitable than the low-end market, which is dominated by sub-$500 PCs with margins of less than 5%," said Chai. "For high-end ultramobile premium PCs priced at $1,000 or more, margins can reach as high as 25%."

The ultramobile premium segment is expected to continue growing, driven by replacement demand for traditional PCs and the demand for the touch experience offered by 2-in-1s, such as tablets and hybrids. While the average selling price for ultramobile premium devices is not expected to decline rapidly, it will eventually reach the $600 level in constant currency. This, coupled with innovative 2-in-1 products, will encourage users to not only replace their PCs but also consider upgrading to devices with more functionality and flexibility.

PC vendors need to adjust their ultramobile portfolios for markets where the ultramobile premium segment continues to grow, such as North America, Western Europe, Greater China, mature markets in Asia-Pacific, and Japan.

The gaming PC market is a very small one, with annual sales of only a few million units, but the average selling price of a gaming PC is much higher than that of a non-gaming PC. Gaming PCs range in price from $850 for entry-level models to $1,500 for premium models.

PC vendors should leverage the Internet of Things to improve customer service quality.

"The high-end and special-purpose PC segment, typically priced above $1,000, is highly competitive, but it is a segment that PC vendors should focus on for long-term profitability," said Chai Researcher.

PC vendors should also look to the Internet of Things (IoT) market to identify areas with the greatest profit potential. For example, PC vendors can leverage the IoT to improve customer service and quality.

"Vendors could use sensors to detect if a battery is overheating or an HDD is overloaded, and alert customers so they can get their PCs checked before they suddenly shut down," said Chai Researcher. "This would not only reduce operating costs for vendors but also provide better service to users."