After experiencing explosive growth in 2020 and 2021, the global PC market quickly encountered a crisis of insufficient demand in 2022, due to the combined impact of reduced welfare for working from home, the Russian-Ukrainian conflict, China's epidemic lockdown and inflationary pressure. Supply chains are shrouded in a gloomy atmosphere of weak demand, high inventory and declining sales.
PC-related supply chains have become more conservative in the prospects of the second half of this year. The goal of clearing inventory as soon as possible has led to a significant slowdown in upstream and downstream demand. Clearing stocks will continue until the first quarter of 2023. Asus even said that PC inventory adjustment periods could last for a full year in the current highly unpredictable global economy, until the third quarter of 2023, which is longer than many suppliers expected.
Intel suffered its first quarterly loss in 30 years
Previously, major upstream suppliers Intel, AMD and Nvidia, as well as terminal products, manufacturing and retail, were optimistic that the PC market will continue to maintain strong growth momentum. However, supply and demand reversed rapidly and fiercely. Affected by a sharp decline in PC demand and AMD challenges, Intel's revenue in the second quarter of 2022 fell 22% year-on-year. After passing GAAP, it reported a loss of $454 million, a sharp drop from the $5.1 billion reported profit in 2021. The gross profit margin in the second quarter of 2022 was 36.5%, a significant decrease from 50.4% and 57.1% in 2022 and 1Quarter 2021.
, compared to AMD's second-quarter revenue increased by a record 70% year-on-year. In addition to continuing to seize market share in data centers and embedded systems from Intel and benefiting from the acquisition of Xilinx, the decline in PC demand has not had that much impact on AMD as the PC market share remains well below Intel.
Graphics Car Leader Nvidia's latest revenue in the second quarter of fiscal year 2023 (as of July 31, 2022) was only US$6.7 billion, a month-on-month decrease of nearly 20%. In addition, Nvidia announced that it would allocate $1.32 billion to deal with inventory cleanup and long-term procurement commitments. The reason for the sharp decline in Nvidia's revenue is not just the sluggish PC market. The most critical factor is that as the mining trend fades, graphics card prices have fallen from their highest point, so they no longer bring the same level of profit. The three major manufacturers of
have also adjusted their PC market prospects this year. Intel estimates global PC shipments to fall by 10% per year. Both AMD and NVIDIA are more conservative, with AMD estimated a drop of around 15%.
PC shipment adjustment efforts have increased
As the world enters an era of weakening of the epidemic, global education bidding has decreased dramatically. Chromebooks are the main driver of the notebook boom in the past two years, flying the highest during the epidemic and falling the most in 2022. PC manufacturers have been lowering their shipment targets, and Chromebooks are one of the key factors.
It is expected that global Chromebook shipments will decline to 55%, possibly as high as 60% in 2022. Overall, Chromebook shipments in 2021 are about 370,000-38 million units. This figure is expected to drop to around 17 million units by 2022.
Major PC brands have reduced Chromebook shipments. As the leader in 2021 Chromebook shipments of 10 million units, HP adjusted its 2022 shipment target to about 3.6 million units, a drop of more than 60%. Acer is the company with the biggest decline in 2022. Previously, Acer estimated that the decline would not exceed 40%, but the latest data shows that it is now down as high as 75%.
The gaming and commercial sectors cannot fill the shipment gap
The conservative prospects of upstream CPU and GPU manufacturers for the PC market have also affected the release timeline of the new platform. Subsequently, rumors of reduced orders and delayed shipments were reported in the upstream OEM industry.
Major PC brands have adjusted their annual shipment targets many times since this year, with the decline increasing. In addition to Chromebooks, laptops, desktops and monitors have also seen sharp declines as slow demand in gaming and business cannot fill the gap left by the consumer market. Several companies have told the supply chain that their inventory clearance target has been extended to three quarters.
As supply chain rumored, Lenovo's Chromebook shipments in 2022 fell by more than 50% year-on-year.Like Windows laptops, it is expected to keep the decline below 10% due to local advantages. However, the overall PC decline has reached 15%.
HP is also facing a similar situation, with consumer laptop shipments falling by more than 20% each year. Although HP is fully committed to increasing the percentage of gaming and advanced business models, shipments have not grown, and overall PC shipments have fallen by 15% this year.
Asus' laptop shipments reached 20 million units in 2021. Supply chain sources recently hinted that Asus has lowered shipments across all production lines. Annual PC shipments in 2022 may drop to 16-17 million units, with the mainboard shipments and profits falling even more. Other PC shipments also saw a sharp drop as gaming and commercial demand did not explode as expected.
Asus' inventory exceeds US$6.78 billion
After Acer and Asus announced their latest quarterly results and outlooks, the market predicts that the global PC market will usher in an off-season peak season in the second half of the year, and there may not be any improvement in the first half of 2023.
ASUS profit fell by 80% in the second quarter of 2022, with inventory increase reaching NT$206.1 billion (US$6.79 billion). Inventory turnover time also increased to 180 days, up from 154 days in the first quarter of 2022 and 114 days in the second quarter of 2021. This means that the product is not selling well and it takes longer to clear the inventory. In July, Asus' revenue was NT$36.752 billion, a month-on-month decrease of 33.72% and a year-on-year decrease of 2.18%.
Acer's second-quarter inventory was NT$63.442 billion (US$2.07 billion), a decrease of NT$417 million compared with the first quarter of 2022. Despite the decline in inventory value, inventory turnover time has also increased, from 79 days at the end of the first quarter to 89.1 days. In July, Acer's revenue was 17.458 billion yuan, a month-on-month decrease of 43.58% and a year-on-year decrease of 33.11%.
% of inventory in revenue, PC supply chain department
Source: Bloomberg, compiled by DIGITIMES Asia, August 2022
The slowdown in orders for major brands marks a lack of good luck in the peak season Chen
Renbao is the world's second largest laptop ODM. After experiencing a low shipment volume in the second quarter due to the mainland epidemic lockdown, it is expected to achieve double-digit growth in the third quarter. However, this estimate has slipped to single digits as performance in the third quarter grew weaker. In addition to Quanta, which is protected by Apple’s MacBook orders, both Wistron and Insider are inclined toward a more conservative 22-Q3 outlook.
Many ODMs are looking forward to in the second half of the year have failed. The main reason is that brand demand has slowed down significantly. Industry analysts pointed out that after the product finally landed for several weeks at sea, the retail market found that the expected demand did not exist, causing inventory to flow back to the brand factory.
Even Dell, which was originally quite confident in the market, suspended parts orders, significantly reducing ODM shipments. Dell has two main ODMs, Renbao and Wistron, of which Renbao is the first to be affected. Although Wistron is not part of order reduction, it has felt the impact. Therefore, its third-quarter outlook has shifted from sustained growth to maintaining levels or even declining.
Renbao CEO Martin Wong pointed out that the ratio of notebook shipments in the first half of 2021 to notebook shipments in the second half of 2021 was around 45 to 55, and in 2022 it was 50 to 50. He added that in the past, the upstream and downstream sectors had different forecasts in terms of shipments. However, this year the two sides reached a rare agreement on annual shipments, which is expected to drop by 20% compared to 2021.
Wong maintains an equally conservative attitude towards 2023. He believes that there are many variables involved, and the biggest variable is inflation. This involves the inventory of the brand, some have been stocked for 5 months. The pressure of inventory clearance is high, and the first half of the year is generally in the off-season, and the rebound may not appear until the second half of 2023.
Whether the industry can rebound in the fourth quarter of 22 is still unknown. Intel's forecast says the third quarter is the darkest moment and the fourth quarter will be the light at the end of the tunnel. This prediction was supported by Wong. Whether this prediction will come true still needs to be observed. The main factor will be the purchasing power of the Western market.Judging from the current brand sales, it is far from optimistic enough.
Decline has led to the burning of IC design department by inventory
IC design industry is also facing the problem of sharp reversal of customer demand and rapid rise in inventory. In the first half of the year, the IC industry hoped that high-level business and game models could improve the quality and quantity of shipments, thereby bringing growth to the IC design industry. In the worst case, it should at least remain on the basis of running. However, a series of negative economic factors and the clarity of end users' demands after the previous logistics problems were lifted indicate a comprehensive decline in PC and laptop applications.
In fact, the IC design community has generally realized in early 2022 that even if the actual needs of end users remain stable, there is no possibility of peak IC demand like in 2021. In addition, it is well known that the overbooking of customers throughout 2021 is serious. Therefore, the industry's annual shipment estimates are relatively conservative. Nevertheless, even the IC design industry has not foreseeed such a slowdown in demand in 2022. The relatively conservative prospects before were obviously not conservative enough, which led to the company further lowering its shipment targets.
Many suppliers acknowledged that they had already discussed with customers whether to gradually adjust inventory as early as the second half of 2021 when Chromebook sales began to weaken. However, on the one hand, due to logistics issues, many retail channels still cannot obtain sufficient inventory. This means that there are a large amount of hidden inventory in the logistics process and it is impossible to reasonably evaluate the actual end user market.
On the other hand, the demand for high-end models, especially business notebooks, continues to grow. This created the expectation that the growth of high-end models could make up for the reduction in consumer model demand, which is why they did not make inventory adjustments as soon as possible.
In confirming poor performance in the peak season, overall, the IC design department is currently in the stage of helping customers clear inventory and renegotiate order size, delivery date and price with upstream and downstream suppliers. The purpose is to prepare for regeneration after the storm has passed.
IC design department has arranged the inventory clearance time to about 2 quarters, hoping to complete the clearance by the end of 2022 and restore the normal demand cycle in 2023. Even so, this goal is still difficult to achieve. If sales figures for the start of school and holidays in 2022 do not rebound, inventory liquidation will be slower. From the client perspective, the market will not recover until the second half of 2023. More importantly, the annual shipment volume in 2023 will only be similar to that in 2022.
End User PC brands, manufacturers and component markets are shrouded in a fog of pessimism. To be honest, after PC leader Intel released its latest results and outlook, it is almost certain that the PC market will be at a low next year. Clearing inventory will create a common market for price discounts.
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