These are interesting times for the computer industry, which has had to contend with a declining demand for certain categories (like the traditional desk) in a not too distant past. But COVID-19 came and breathed new life into the market.
As everyone rushed to buy PCs, the increase on the consumer side more than offset the slowdown on the commercial side, as a number of companies closed offices and / or dealt with rising costs and other disruptions caused by the pandemic. But overall PC sales rose regardless and jumped 13.1% in 2020.
PC sales appear to have peaked in the first quarter of 2021 as it grew 55.9% before declining to a more reassuring growth rate of 13.2% in the second quarter. Smaller suppliers with unique features or niche design were a major driver of growth, which is not surprising given the level of demand.
And that too in a market affected by the global chip shortage. IDC says that the increased demand combined with the global chip shortage actually led some to buy desktops instead of the preferred notebooks.
The outlook from here on out seems mixed, as demand on the commercial side should increase, even if the consumer side slows down after a year of aggressive buying. But customer preferences are likely to still hover around better speed, power, storage and display.
When choosing stocks, the PC market can not really be considered in isolation because the leading PC manufacturers in an attempt to diversify beyond the mature PC market are also trying to build service companies while making other consumer equipment of various form factors, including tablets, smartphones, wearables and mobile computing devices of various kinds.
And we now have 5G and AI to add features to these devices, which of course gives people more reason to use. Especially those who have not lost their jobs (or have been reinstated) while also receiving incentive money.
There are 3 computer stocks worth discussing today.
First up is Apple AAPL. The popular provider of iPhones, iPads, Macs, Watches and a host of other products and services (App Store, Apple Music, AppleCare, Apple Pay, etc.) reported a very strong quarter in June with record growth across geographies, double-digit growth in each of its product categories and a constantly increasing installed base of active entities (which feed the service business). The company also returns a huge amount of cash to investors in the form of share buybacks and dividends.
Zacks Rank # 1 (Strong Buy) stock is expected to increase revenue 33.8% this year (ending September) and 4.2% next year. Earnings are expected to jump as much as 70.4% this year. Although current expectations are for 1.8% growth in 2022, these estimates are usually raised much higher as we go through each quarter and the outlook becomes clearer.
The surprise story is attractive with an average hit of 23.7% in the last four quarters. Last quarter, it hit 30.0%. As a result, estimates for both the quarter in September and December are on an upward trajectory. The annual estimate was increased by 41 cents (7.9%). The estimate for 2022 rose 34 cents (6.4%).
# 1 ranked HP Inc. HPQ is known for its personal computers and other access devices, imaging and printing products, as well as related technologies, solutions and services sold to individual consumers, SMEs and large corporations, including customers in government, healthcare and education.
The company is a major recipient of the increase in consumer PCs in the past year, and its impact on corporate customers also places it well in the increasingly hybrid environment this year. It has a goal of returning a billion dollars to investors every quarter.
The company is currently expected to increase its revenue and earnings by 9.9% and 63.6% respectively in 2021 (ending October). Growth rates are expected to decline next year, although estimates for both years will continue to rise from now on (6.6% in 2021 and 7.4% in 2022 since last reported). It also has a solid estimate of surprise history, beating estimates by an average of 21.1% over the last four quarters.
Lenovo Group Ltd. LNVGY is the largest PC vendor in the world, though like the others it also makes other devices. It is known for its Think-branded commercial PCs and idea-branded consumer PCs as well as servers, workstations and a family of mobile internet devices including tablets and smartphones.
The company is very focused on increasing its R & D investment over the next few years to run the product industry. In the meantime, it continues to see strength on the service side as it continues its journey to become primarily a service company. Lenovo is also benefiting from the increased digitization of our lives, which has only been exacerbated by the pandemic.
Revenue and earnings from this Zacks Rank # 2 (Buy) rated company are expected to grow 14.3% and 71.4% this year before falling off in the next. Estimates for 2021 and 2022 have increased by 60 cents (24.5%) and 29 cents (11.5%) respectively in the last 30 days.
However, Lenovo has not had a particularly good history of beating estimates (there is only one analyst giving estimates). So the growth rates may actually be weaker than expected at the moment.
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