$5,899 PCs sign of pandemic blues

VAIO, of course, is the PC brand of Japan’s electronics giant, Sony, that was spun off as an independent company back in 2014 due to poor sales, as it retreated back to just its domestic market to lick its wounds. The Z Signature, as this model is called, is VAIO’s way to re-enter the markets outside Japan in a big, splashy way.

At this kind of price level, one could easily pick up six decently-spec computers. Now, if industry trends are to go by, the market might just have an appetite for such premium products.

For more than a decade, smartphones were the electronic devices that captured the attention of consumers. Entire companies built their fortunes either supplying the tiny parts used to assemble these devices or assembling the devices thousands at a go. Many built careers out of creating apps that increased the utility of the phones to near infinity. Mobile app unicorns were created by positioning themselves as the platform between consumers and service providers. Billions of people could not get by the day without tapping or swiping their phones countless times.

In contrast, the PC makers languished in the background. Their products had been relegated to functional tools that office workers and students use only because they had to. There is hardly anything most people need to do on their PCs that they cannot do on their smartphones. So eager were the PC makers to juice up demand that they were compelled to come up with rather contrived ways to define different sub-segments. Fancy new phones attracted more glowing headlines than the latest spec-up notebook computers. Demand for smartphones surged — although growth has slowed in recent years — while that of PCs stalled, compelling PC makers to start their own smartphone lines or buy over existing ones, like what Lenovo did with Motorola.

Now, according to industry statistics put out by technology research firm IDC recently, there has been a curious changeover of sorts. Last year, worldwide smartphone shipment dropped by 5.9%. In contrast, PC shipments shot up by 12.9%, and is seen to accelerate with growth of 18.2% this year to 357.4 million units. Smartphones, according to IDC, will ride on the post Covid-19 recovery momentum and chalk up 5.5% growth this year.

The strong demand for PCs can be pinned squarely to the pandemic, as millions of households need to have a computer for each working adult, and for each student to continue with lessons online. IDC also believes strong demand exists for new PCs to enable hybrid-use cases that will be required as the world finds a post-Covid-19 normal.

As the worst of the pandemic is assumed to be over, many economies have eased lockdowns, bringing back some semblance of normalcy. Yet, IDC believes the growth momentum will continue this year. “While companies around the world continue to determine reopening plans and what the ‘new normal’ will look like, PC demand will experience meaningful tailwinds,” says Ryan Reith, program vice president with IDC’s Worldwide Mobile Device Trackers. “This is all happening while education backlogs continue to grow and retail channel inventory in many geographies is still well below historical levels.”

The five largest PC makers — Apple, Lenovo, HP, Asustek Computer and Acer — between them command around 80% of the market. Their share prices (see chart) have reflected the growth. Even with this healthy run in their share prices, the PC makers are still trading at rather modest levels. Acer has been accorded the highest valuation by the market with 19 times historical earnings; followed by Lenovo with around 15 times. Asustek and HP Inc are neck-to-neck with just below 13 times each.

In contrast, the smartphone makers are accorded more respect despite the slower growth prospects of the industry. Apple, with the bulk of its earnings from the iPhone than the Mac, is trading at around 34 times. Xiaomi, listed on Hong Kong, is valued even higher at 38.5 times, while Samsung Electronics, which has an expansive business in semiconductors and other consumer electronics, is around 21 times.

With years of healthy demand behind it, it is easy to understand why investors still like smartphones makers better. Furthermore, the whole mobile communications ecosystem, with the marketing of next-generation 5G mobile networks as the key agenda, is busily pushing their respective customers to spend and upgrade. Network operators are persuading mobile operators to buy and install 5G networks; mobile operators, in partnership with 5G handset makers, are cajoling consumers to sign up for higher-priced subscription plans in return for some discounts off the latest fancy 5G smartphones selling at increasingly expensive prices.

Just like how the pandemic-triggered work-from-home arrangements gave an unexpected lift to PC demand, the flip side has proven true for the mobile communications ecosystem. With home and office wireless internet access the norm for most, there is less urgency for more expensive 5G plans packaged with more data. Closed borders mean high-margin roaming revenue has vapourised for most mobile operators too.

With work-from-home arrangements a norm by now, food courts and coffeeshops near housing estates are enjoying brisk business every day. With leisure travel a distant, forlorn desire, consumers who can afford to have channelled their spending to high-end restaurants. Anecdotally, reservations now have to be made months ahead for certain highly-rated restaurants.

PCs, as a functional tool, are seen to be in continued demand and will help contribute to the millions of units being assembled and shipped. Going by the same logic, stumping up $5,899 for a well-crafted premium PC made in Japan, does not sound too far-fetched for those who want something different from everyone else.