MarketWatch First Take: The pandemic PC boom is still happening, but twin dangers loom

United States

After more than a year into COVID-19 pandemic, people are still buying personal computers in massive numbers, but PC makers face increasing costs to build new machines while the threat of a sudden dropoff in demand looms.

HP Inc., HPQ, -0.22%, Dell Technologies Inc. DELL, +0.04% and Lenovo Group 992, -3.48% all reported strong results this week, as a pandemic boom in PC sales continued. China-based Lenovo, the leading PC maker, reported stunning revenue growth of 400% to $ 15.6 billion in its most recent quarter, its fastest growth in almost a decade, while Dell’s consumer sales blew away estimates and HP continued a strong run.

“I think the major difference is people, they start to realize…they need one PC per person and not one PC per house,” said Gianfranco Lanci, president and chief operating officer at Lenovo, when asked on the company’s earnings call whether there have been any changes in the consumer market. “We are quite optimistic,” he said, from “what we see in terms of growth,” adding that market-research data confirms that growth will continue for several quarters.

Market-research firm IDC also sees growth continuing this year, while reporting that PC shipments grew at an astonishing rate of 55.2%, year over year. The group also recently noted, however, that component shortages will likely be a topic of conversation for the majority of 2021, but the more important question should be what PC demand will look like in two to three years.

For more: The pandemic brought the personal computer back to life, with help from Zoom

Analysts on all three company calls showed some concerns about how long the strong demand will last and what the companies were observing in the market. But the bigger, more immediate concern was how the industry is being hampered by chip shortages and other component-supply issues.

“It’s clearly a fluid environment,” Dell Chief Financial Officer Tom Sweet said in a conference call Thursday afternoon.

“We are very optimistic about opportunity over the next coming years in the PC space,” Sweet added. “But there is work to do short term as we work our way through the component shortage.”

Dell’s better-than-expected results included a 42% jump, to $ 3.5 billion, in consumer PC and related sales while enterprise sales grew 14% to $ 9.8 billion. HP reported 27.3% growth to record revenue of $ 15.9 billion, and executives talked about a strong second half of the year, but also addressed costs potentially squeezing margins.

“We’re likely to see higher commodity costs, logistics costs, and that will potentially impact our ability to meet demand,” HP CEO Enrique Lores said. “And then finally there is some seasonal mix headwinds in Q2, as in supplies, as Q2 is typically our strongest quarter for supplies.”

As more companies slowly reopen their offices, investors fear the pandemic-fueled consumer purchasing boom will slow, though executives said it could also spur companies to upgrade some of their office equipment. The PC business has had a rare year of tremendous sales growth, but investors are right to be wary of what happens when the boom ends.