IDC Slashes Wordwide PC Shipment Guidance, Windows 10 Upgrades Hurting Sales

The dreary PC market received yet another downgrade as the IDC restated its Worldwide Quarterly PC Tracker projections for the remainder of 2016. The restatement comes on the heels of a larger-than-expected decline in PC sales in the first quarter of this year. The bottom appears to be falling out of the PC market, which includes desktops and notebooks, at a more rapid pace than anticipated; it declined 12.5 percent year-over-year instead of the projected 11.3 percent in the first quarter.

The 12.5 percent drop is worrying, but the fact that this appears to be a sustained trend is even more troubling. The PC market declined nearly 11 percent in 2015, and the IDC projects a 7.3 percent fall in 2016. The IDC cited several factors that are contributing to the headwinds, including weak currencies, depressed commodity prices, political uncertainty and delayed projects. The tablet and phone markets continue to recede as well, so the continued slump is not coming at the hands of competing devices.

Surprisingly, the company also noted that free Windows 10 upgrades are a significant factor to the sluggish sales volume, as users do not have to buy a new PC to upgrade to the latest version of the operating system. Windows 10 is outpacing Windows 7 adoption by 145 percent, which represents the fastest adoption rate of an operating system in the company's history; upgrades topped 270 million users in the first eight months alone.

The free Windows 10 upgrade is certainly pushing the adoption rate uphill, but the fact that the operating system is lightweight enough to run well on many older PCs is not helping, either. The majority of modern operating systems and applications run well enough on older hardware for mainstream users to forgo hardware upgrades. Microsoft might be able to staunch the bleeding by curtailing the free upgrade program, but it has not announced any plans to that effect.

The desktop PC segment is experiencing the most drastic declines, while the notebook segment is subject to contractions that are more modest. In 2015, 162.6 million notebook PCs shipped, and the IDC predicts that 152.3 million notebooks will ship in 2016. The desktop PC segment accounted for 113.2 million units in 2015, but IDC projects that the segment will slide to a mere 103.3 million units in 2016, and to 99.2 million in 2017.

"The latest update reflects continuing pressure on PC shipments, but does not significantly change the factors driving the market," said Loren Loverde, Vice President, Worldwide Tracker Forecasting and PC research. "In addition, we have now had four consecutive quarters of double-digit volume declines. This type of prolonged slump is unprecedented, and lowers the bar for some improvement going forward. Unfortunately, the PC market still faces some persistent challenges, and for now, improvement continues to mean slower declines."

The IDC, like the majority of the analyst firms, does not expect growth to return to the PC market in the near or long term, instead predicting a -0.5 percent five-year CAGR (Compound Annual Growth Rate).

The PC industry is already roiling. Intel recently fired 11,000 employees in the midst of a vast restructuring initiative that is designed to reduce its reliance on the desktop PC market. The latest market restatements will likely spur another readjustment of the stock prices of the major PC vendors, along with the entire food chain of secondary suppliers, such as storage, GPU, CPU and DRAM vendors.

For now, the only hope for the PC market (and desktops in particular) is for the bleeding to slow enough for the market to stabilize and exhibit some sort of predictable and rational behavior. However, that glimmer of hope seems to be fading with each new restatement.

Paul Alcorn is a Contributing Editor for Tom's Hardware, covering Storage. Follow him on Twitter and Google+.