How a Slowdown in the PC Market Can Be Good News for Investors
By Moe Zulfiqar for Daily Gains Letter |
Investors whose portfolios include companies that make personal computers (PCs) should be careful—they might be headed towards hard times.
Gartner, Inc. (NYSE/IT), an information technology (IT) research provider, reported that this quarter, global shipments of PCs declined for the fifth consecutive quarter, falling 10.9% from a year ago. (Source: King, I., “PC Shipments Fall for 5th Quarter Even as U.S. Decline Slows,” Bloomberg, July 11, 2013.)
The firm also reported that some of the biggest PC makers saw sales drop. Hewlett-Packard Company (NYSE/HPQ), which controls 16.8% of the PC market, witnessed its PC shipments decline 4.8%. Dell Inc. (NASDAQ/DELL) experienced PC shipments plunging 3.9% over the quarter; it controlled 11.8% of the market share.
What all this means is that if the PC makers aren’t shipping as many units as before, then their corporate earnings will decline. This will mean lower stock prices and, eventually, more losses to investors’ portfolios.
Now the critical question: how can an investor actually profit from the situation? One way to profit would be to bet against these PC makers, but that can be risky to investors who are investing for the long run and don’t want to add too much risk to their portfolio.
But there’s an alternative way to grow a portfolio as PC sales deteriorate.
According to a forecast from International Data Corporation (IDC), a company providing market intelligence, shipments of tablets worldwide are expected to increase 58.7% year-over-year in 2013, for a total of 229.3 million units.
There’s more: “What started as a sign of tough economic times has quickly shifted to a change in the global computing paradigm with mobile being the primary benefactor,” says Ryan Reith, a program manager at IDC. (Source: “IDC Forecasts Worldwide Tablet Shipments to Surpass Portable PC Shipments in 2013, Total PC Shipments in 2015,” International Data Corporation web site, May 28, 2013, last accessed July 18, 2013.)
“Tablets surpassing portables in 2013, and total PCs in 2015, marks a significant change in consumer attitudes about compute devices and the applications and ecosystems that power them,” he added. “IDC continues to believe that PCs will have an important role in this new era of computing, especially among business users. But for many consumers, a tablet is a simple and elegant solution for core use cases that were previously addressed by the PC.” (Source: Ibid.)
While it might make sense to add companies that make tablets to your portfolio, the prices of tablet makers like Apple Inc. (NASDAQ/AAPL) and Amazon.com, Inc. (NASDAQ/AMZN) aren’t always what a small investor can afford.
Investors may want to consider companies like ZAGG Inc (NASDAQ/ZAGG). It makes accessories for tablets and smartphones. If the market for these devices improves, they can profit heavily—it’s a classic “investing in shovels during a gold rush” opportunity.