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Intel chips shortage, trade tensions hit PC shipments, but rebound expected

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Intel chips shortage, trade tensions hit PC shipments, but rebound expected

A confluence of issues bogged down the worldwide PC market in 2018, including a shortage of Intel Corp. chips and trade tensions between U.S. and China. But a turnaround is in sight, with slight growth in worldwide PC shipments projected for 2019, research reports and analysts said.

Trade tensions between the U.S. and China created an uncertain business environment, hurting IT budgets and overall PC shipments, said Bob O'Donnell, chief analyst at TECHnalysis Research, in an interview. But the overall impact of trade tensions on PCs is not clear yet, partly because Taiwan is a larger player in making PCs and parts than China. The full impact of the U.S.-China trade tensions will become clearer next year, said Mikako Kitagawa, senior principal analyst at Gartner, in an interview.

Worldwide PC shipments in 2018 — which totaled 259.4 million — declined by 1.3% compared to shipments in 2017, according to a Jan. 10 report from research firm Gartner Inc. Another research firm, IDC, pegged the annual worldwide PC shipment decline at 0.4% in its report, which was also published Jan. 10.

The numbers were bogged down by a weak fourth quarter in 2018, with worldwide PC shipments declining by 4.3% compared to the same quarter in 2017, according to Gartner. IDC's study said worldwide PC shipments in the fourth quarter declined by 3.7%.

"We expect that PC shipments in 2019 will be slightly positive, growing by 0.6%, compared to 2018," said Kitagawa.

PC shipments in the fourth quarter are typically strong with holiday purchases at full swing. The demand for PCs was there, but the supply fell short as chips from Intel were not available, Kitagawa said.

Facing manufacturing issues, Intel in September issued a chip supply update, saying it would prioritize making high-performance chips for servers and business and gaming PCs. The chipmaker acknowledged supply would be tight for entry-level PCs, which are typically lower priced and in demand during the holiday season.

"We believe that Intel put priority of CPU supply to the top PC vendors which sell business PCs. This is a critical practice for PC market because the market growth is led by business PC upgrades," Kitagawa said.

The chip shortage did not affect business PC shipments as enterprises continued to upgrade laptops and desktops, Kitagawa said. Enterprises are upgrading to PCs with Windows 10 as Microsoft Corp. ends support for Windows 7 on Jan. 14, 2020.

Intel spokeswoman Cara Walker declined to comment on issues related to the shortage of chips, saying the company will provide an update in its next earnings call on Jan. 24.

Intel is having difficulty transitioning to its advanced 10-nanometer manufacturing process, which will make chips smaller and more power efficient, said Dean McCarron, principal analyst at Mercury Research, which specializes in PC component research.

As a result, Intel is still using its 14-nanometer process, which has been in place since 2014. Intel used to upgrade its manufacturing facilities every two years prior to the 14-nanometer implementation.

"If they had 10-nanometer up and running where they wanted to be, they could have a demand upsurge," McCarron said. He added that smaller rival Advanced Micro Devices Inc. could not make up for shortages caused by Intel's manufacturing issues.

The demand for PCs will be met in 2019, when chip supplies normalize, McCarron said.

A number of innovations including 5G laptops, longer battery life and new designs will drive PC demand in 2019, O’Donnell said. "We will have super thin, super light laptops. Across the board, there are great PCs on the business and consumer side. The innovations are modest, but there's more vigor," he said.

Shipments of PCs from HP Inc., Apple Inc., Asustek Holdings Ltd. and Acer Inc. declined in the fourth quarter of 2018 compared to the same quarter in 2017, according to Gartner. Lenovo Group Ltd., the world's top PC maker, and Dell Inc. managed to grow shipments. For all of 2018, worldwide shipments of computers from Apple and Asus declined, while shipments went up for top three vendors: Lenovo, HP and Dell.