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PC demand: Intel, HP, Apple will have ‘some hard times’ in first half of 2023, IDC VP says

IDC Consumer Device Trackers Group VP Ryan Reith joins Yahoo Finance Live to discuss top smartphone makers, global smartphone shipments, vendor woes, sales, and the outlook for growth.

Video transcript


- Well, of course, the PC and smartphone market will be under the spotlight as Apple reports this week. Preliminary data shows a dim picture in store for the fourth quarter of 2022. That's according to researcher, IDC. For more on this and the road ahead in 2023 is Ryan Reith. He's IDC consumer devices group VP. Ryan, thanks so much for being here. Let's take smartphones first of all because it seems like it was a pretty lousy year for smartphone sales in 2023.

You guys are looking at an 18.3% drop in the holiday quarter and 11.3% drop in 2022 overall. What were some of the dynamics driving that? And do you think any of them are going to change this year?

RYAN REITH: Yeah, good to talk to you again. I mean the dynamics really are that demand has slowed. And I think you can see that for not only the smartphone market but adjacent markets, like PCs, tablets, televisions, et cetera. You know inflation obviously has a big impact on this. Clearly, we have a war going on in the world that doesn't help things. And even though China has just changed their policy on the zero COVID situation, it really hasn't changed the consumer sentiment for that market.

And let's keep in mind that China from a consumption standpoint is the largest market for smartphone consumption. I think it's the second largest market for a PC. So that alone will have a big impact on overall sales. As we look towards this year, you know I think we're probably not going to see much recovery this year. It will get a little bit better than where we're at now. I think we still have a little bit further down to go probably in the next three to four months.

And as we get towards the end of the year, we expect that we'll see some levels of recovery. But really 2024 is the story around certainly the smartphone market when it starts to come back in gross.

- So what should we be expecting in terms of any type of upgrade cycle for devices among consumers?

RYAN REITH: Well, I mean, if we're talking about phones, I think we've already seen the lengthening, the real lengthening of life cycles. I think we were talking about four year life cycles in Europe pre-pandemic. I don't think that too much has changed. If anything, maybe some markets have gone a little bit longer. What I usually say to people when I talk about smartphone replacement cycles is two things. One, the expansion of installment plans, the ability to pay for your phone over the course of three years, four years in some countries has expanded not only beyond the US but it's moved to new channels in parts of Europe.

So it gives people the ability to pay for something over time, which again, is not a new concept. But it changes the point of sale a little bit. From a PC standpoint, we're actually expecting some actually slightly condensed refresh cycle, especially on the consumer side compared to pre-pandemic. But right now, I think a lot of that is still sort of questionable as to what that looks like when we get to '24 and even '25 and beyond.

- Ryan, I recently talked with Intel CEO Pat Gelsinger, and he said that the PC correction might extend or might start to improve later this year. How much exposure is Apple's business to the PC continuing to be under pressure in the first half? And do you see them playing a part in that rebound should things improve?

RYAN REITH: Yeah, so I would say it's, well, it's exposure to Apple, of course, because the Mac business is not a small business. It's, not as big as iPhone but it's not small. So they're exposed, and like I said, everyone in the PC industry, we're just all going to hear about what they did in the holiday quarter. But I can tell you that the first half of this year, anyone that's in the PC space, whether it's a chip player like Intel or others or an HP or an Apple is going to have some hard times.

So they're not going to see really positive PC results until a few later this year but realistically, most next year. In terms of how much will Apple play, in fact, we are actually seeing significant growth for Apple in the PC space not only based on the results from last year, but we're seeing a lot of traction that they're making, especially since they've moved to their own chips. I mean, they're almost entirely off of Intel now at this stage.

So they've got more leverage in terms of how they price things, where their margins are at. And I think the telling sign is that no one in the PC industry questions the commercial market. I think that's a given that the commercial market is resilient. There's a little bit of setback right now. But next year will be a good year for commercial PCs. And Apple is actually making some traction there, which has been an area where they just really haven't.

I don't know if I'd say they haven't focused, but they haven't put a lot of what we've seen manpower towards trying to take what used to be all Intel share. Now Intel is losing some share in the commercial market to not only Apple but AMD.

- Given the stickiness of inflation in services, particularly here, and for Apple, they have a services businesses that's a lot of little spins typically for consumers. But is there anything that we can extrapolate from this report about the health of the consumer that we've heard about from banks earlier in this earnings season and airlines even as well? But for many of them, the cycles may be different for Apple. Perhaps that could offer us some type of barometer into the health of the consumer as well. I don't know, I'd love to get your take on that.

RYAN REITH: Yeah, I think it's a good point. I mean, one of the things that doesn't get talked about as often from both IDC as well as other, whether it's banks or other market research firms that we compete with is we tend to talk about when Apple ships new devices. But what Apple, also especially from the smartphone side, they are the market leader in second hand shipments that go, they get treated in. They get more often than not get a new battery, a new screen, maybe a few other cosmetic improvements.

And they get resold back into different industries, usually different countries and so forth. The reason why that's important is because those devices eventually become active. You know hand-me-down devices from Apple, even if it's just Wi-Fi to a child or someone else, those all become active. And that's a benefit for Apple because that's an opportunity to sell services to whoever that user is. So they've got that leg up on the competition. There's no question about that.

But at the same time, I mean, they're not immune to higher cost of goods and people trying to be a little bit tighter with their wallets. I mean, they sell premium goods. We all know that. That's not a new thing. Even their second hand goods when they turn out in different countries are usually priced higher than a lot of the new smartphones that are being sold in those markets. So again, they're facing the same challenges. But they've got other ways, especially where they can continue to drive the services revenue. And we've seen that benefit for the last, what, five or six years at least now.

- All right, well, we'll see how it plays out in the quarter. Ryan Reith, thank you so much, IDC Consumer Device Trackers Group VP.