The PC industry got a big, temporary boost from fears that Trump will impose tariffs on China - and it's good news for Intel, AMD, and Microsoft
- PC shipments were stronger than expected in the second quarter due to a corporate refresh cycle and the resolution of Intel's production issues.
- The uptick was also due to fears that Trump might impose new tariffs on China, which prompted PC makers to build more PCs ahead of time, according to analysts.
- Stronger PC shipments may have given boost Intel and AMD, which are both set to report results. But despite the temporary gain, the chip giants are still wrestling with soft demand for datacenter chips.
- Another winner appears to be Microsoft, which said that its Windows business has benefitted from manufacturers building more PCs ahead of potential tarriffs.
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The PC market, which has been in steady decline in the last few years, has become an unexpected winner in the tech Cold War with China - at least temporarily.
And this is good news for PC chipmakers Intel and AMD, which are set to report results in the next two weeks, just as it was good news for Microsoft when it reported its results last week.
Both semiconductor giants have been focused more heavily on revenue from datacenter chips, but some analysts think they got a rare lift from what had been the sagging PC market.
A shrinking PC market
PC shipments, which includes desktops and notebooks, have been sliding yearly over the last five years, and are expected to total 254 million in 2019, down about 18% from 2014, according to IDC.
But the second quarter saw 64.9 million PCs shipped, up 5% from the year-ago period, and "notably higher than expected," IDC said.
One reason for the uptick is the upcoming end of support for business PCs running Windows 7 which is expected to spark a spike in demand for new systems running Windows 10 in the corporate world. Another is that Intel, the world's leading PC chipmaker, was able to resolve key production issues that had constrained supply recently.
Jitesh Ubrani, an IDC research, said in a report that "supply for Intel's processors improved markedly during the quarter, allowing most PC vendors to fulfill old orders while also shipping a healthy supply of new PCs into the channels."
Trump tariff fears
But analysts point to another potential reason: worries of another round of Trump Administration tariffs, which sent manufacturers scrambling to build PCs ahead of time before component prices go up.
US/China trade tensions escalated in May when the Trump Administration blacklisted Chinese tech powerhouse Huawei and imposed new tariffs on Chinese imports. Trump's trade team was getting ready for new talks in Shanghai next week, but fears of more tariffs have remained.
"The threat of increased tariffs led some PC makers to ship a surplus of desktops and notebooks, thereby artificially propping up the PC market during the second quarter," IDC research manager Jitesh Ubrani said in a note.
Mizuho Group analyst Vijay Rakesh also told clients in a note that he sees shipments "trending significantly stronger" in the second quarter, which he said was likely due to "better commercial PC shipments and a pull-in from the September quarter on fear of a 25% tariff."
Wedbush analyst Matthew Bryson also cited "uncertainty around tariffs" that led to "some pull in" of PCs that were expected to be shipped in the second half of the year.
Microsoft, which reported results last week, also said its PC division got a boost from a wave of Windows 7 upgrades and PC makers building up inventory ahead of possible tariffs.
A temporary gain
Unfortunately for Intel and AMD the unexpected second-quarter gain in PCs probably means a more downbeat results for the rest of the year, analysts said.
Rakesh wrote that the PC shipments uptick "ahead of China tariff could be a 2H [second half of the year] drag." Bryson of Wedbush echoed that view, saying "these better PC numbers come at the expense of" revenues in the second half of 2019.
Meanwhile, Intel, AMD and another chip giant, Nvidia, continue to wrestle with the uncertainty in the market for chips that power data centers. In April, Intel reported a weaker-than-expected 2019 revenue target, largely due to downbeat expectations from the data center market.
Weakening demand in
Rakesh said he does not expect a meaningful rebound in data center spending in the second half of the year which means that "combined with slower PCs and competitive Intel pricing" could limit any upside for AMD, which is scheduled to report on July 30.
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