The story that PC sales slipped in 4Q, first raised as a Microsoft comment yesterday, is now being quasi-confirmed by more detailed shipment data released by various Wall Street researchers. One, citing Gartner, says that y/y growth in PC sales was well below seasonality in the quarter, and the expectation overall is that PC sales in 2012 will be very near to flat. Some forecasts are putting sales down a trifle. Nobody doubts that this is due to tablets, but as I noted yesterday, the thing driving this change is less a movement away from PCs than a movement to defer upgrading PCs to focus instead on a cooler device.
What this does do, whatever the cause, is hurt players like Intel and Microsoft who have built their business substantially on PCs and who now face slower growth in revenues from that source. Both companies have tried to move to catch the wave on smartphones and tablets, and in both cases it’s too early to say that they’ll fail. It’s also far too early to say they’d succeed, and the odds are longer for their having delayed so long in recognizing what was happening in their markets.
Microsoft is now said to be preparing for a major marketing realignment that will include some layoffs, though not large numbers. This to me seems another example of our industry’s tendency to shoot behind the duck. The time to fix marketing problems is when you see market changes, not two or three years afterward. The pace of change has advanced so far at this point that Microsoft may have a major problem creating an organization before its mandate has been rendered moot by further change. They’ve never been able to think level with the market; how now will they learn to think ahead?
Network vendors might want to ponder that point. In the network equipment space, the Street is mixed in their view, due in part to conflicting data and seemingly contradictory trends. On the one hand, some analysts see the continued drop in ROI for operators, particularly in the mobile space, creating investment pressure and lowering capex. Some think that video will increase traffic and increase spending, but then there are those who say that might be true but that the fruits of the trend will fall in the laps of Huawei and ZTE. There was a comment today on Alcatel-Lucent, who carries a lot more cost than the Street likes. While the company says they won’t do what NSN has done, which is make a major cut in what they sell and reduce costs to focus on key areas, I think that unless they figure out a way to capitalize on their positives more quickly, it’s going to come to that. They have too much EU exposure to take market risks; the economic fundamentals are against them in their home market.
The direction of service provider equipment seems clear to me, but enterprise sales are harder to figure. Our survey data indicates that projects in 2011 were pushed and that there will be fewer projects approved in 2012. That creates a downward pressure this year, clearly, but more significantly it’s the projects in Year One that drive upward budget momentum in Year Two and beyond. If we stay with a persistent under-supply of new projects we’ll be lowering future budgets too, which is a problem that takes a couple of years to work out once it gets started. It’s been 20 years since budget spending in networking exceeded project spending, but we’re going to have that in 2012 according to the enterprises we survey. There will be plenty of bright spots, and still chances for companies to improve market share, but the market is going to be harder to navigate in 2012 than it was in 2011, we think. Since economic conditions are likely to improve we may be somewhat insulated from this, but if Huawei and ZTE (as expected) make a move on the enterprise space, it could be trouble.
