#MarketWatch First Take: The PC boom is wobbly as the most important time of year approaches

HP
HPQ,
-0.99%
reported flat PC sales, with a shortfall about $500 million below analysts’ expectations, blaming low-end component shortages amid the global semiconductor shortage and factory disruptions amid a new wave of the pandemic. Consumer revenue was up 3% and commercial fell 1%, while printing surged 24%. HP did not give a revenue forecast for the current quarter.

Dell
DELL,
-0.50%,
on the other hand, said both its consumer and commercial PC businesses grew by double digits in the quarter, as the company also gained market share. Revenue from Dell’s client solutions group (CSG), made up mostly of PCs, grew 27%, better than Wall Street’s expectations.

The PC business has been in the throes of a major boom, thanks to the pandemic, as more workers and families bought additional PCs for working, learning and entertainment while stuck at home. As the industry heads into the important back-to-school and holiday shopping seasons, though, there is a valid concern that all the machines they sold in a flash during the first year-plus of the COVID-19 pandemic has disrupted the usual buying cycle.

Earlier this week, IDC revised its growth rate for PC shipments for the rest of the year to 14.2% from 18%, citing component shortages and ongoing logistical issues as the main reason. In the most recent PC-market-data report by Gartner, HP was still No. 2, behind Lenovo. But Gartner noted that HP’s data for the second quarter, which ended June 30, showed an 11.2% drop in unit shipments, due to component shortages.

Gartner noted that China’s Lenovo Group
992,
+0.13%
has an in-house manufacturing operation, which enables it to better control components and other supply issues, compared to its competitors. Gartner also said that Dell struggled with component issues with its mobile products in the second calendar quarter, when it said Dell saw single-digit growth in notebook PCs.

When analysts who follow both companies asked Dell executives on that company’s conference call late Thursday about the disparities in their PC business compared with HP, they said Dell has been gaining market share in PCs overall, and especially in commercial PCs, its focus. They also attributed some of it to “working through” the component shortages “reasonably well.” Dell also forecast that its CSG business would grow by the high single digits in the current quarter, on a sequential basis.

“Our job is that we have been directly managing our components for a very long time in this company, and we continue to let people know what our long-term demand is,” Dell vice chairman and co-chief operating officer Jeff Clarke told analysts. “Those partnerships over a long period of time, and agreements we have in place, help us navigate these types of situations.”

Dell executives agreed with a few analysts’ comments that the market seemed to be shifting to more commercial sales, as offices slowly open back up, while HP said demand was strong in both consumer and commercial, but that commercial growth was growing faster.

“What we saw is very strong demand from both commercial and consumer categories,” said Enrique Lores, president and CEO of HP, adding that orders for Chromebooks from schools came to a halt while they waited for funding, but those are expected to pick up again this quarter. “In any case, very strong demand on the PC side, faster growth from the commercial, but very strong growth from consumer.”

The forthcoming upgrade of Microsoft Corp.’s
MSFT,
-0.97%
Windows 11 should provide another big boost for PC sales in general, but some investors may be betting that the PC boom has peaked. Shares of both HP and Dell fell slightly in after-hours trading, after a strong year. In the past 12 months, shares of HP have soared 59%, while shares of Dell are up 63% from a year ago. It’s likely that stock in all the companies in this sector will continue to be volatile in the next few months, while investors try to determine how strong the demand situation actually is.