Market Watch

PC OEM Inventory Drops in Welcome Development, Thanks to Windows 8 Flushing Out Older Computers


But in setback, other segments of the PC supply chain see no stockpile reductions in their own areas

The launch of Windows 8 at the beginning of the fourth quarter succeeded in trimming PC stockpiles in the earlier quarter, but the new operating system’s effect on other parts of the PC supply chain were more ambiguous—with inventory levels actually rising in other related nodes, according to an IHS iSuppli Inventory Insider report from information and analytics provider IHS.

Inventory at PC original equipment manufacturers (OEM) at the end of September fell to 25.6 days, down from 28.0 days in the second quarter, based on the Days of Inventory (DOI) measure traditionally used to keep track of chip or product stockpile quantities in the industry.

The reduction was a welcome development, especially as DOI among PC OEMs in the second quarter had risen to elevated levels not seen since 2008 just before the economic recession, and was starting to prompt concern. Following the shaveoff, the third-quarter DOI for PC OEMs was exactly back to where it was in the first quarter, at 25.6 days just slightly above what the industry considers as the normal stock-keeping DOI of 25.4.

Even so, the positive inventory drop among PC OEMs did not carry over to the other nodes of the PC supply chain. Inventory DOI rose to 34.1 for the PC distributor segment, up from 32.9; to 35.5 for the disk storage sector, up from 30.7; and to 37.0 for the PC semiconductor area, up from 36.0.

Among PC OEMs, inventory declined as the big players sought to clear out excess quantities of computers running Windows 7, in anticipation of the release of Windows 8 in October.

Hewlett-Packard, for instance, cited what it called a “disciplined approach” to inventory management, saying in a conference call with analysts that the company “saw specific pressures” to clear Windows 7 stockpiles, just as its competition did the same. Dell, for its part, reported a desirable 12 percent drop in inventory—even though the company’s consumer PC business was also negatively impacted, as many consumers chose to postpone any PC purchases while awaiting the launch of Windows 8.

Meanwhile, areas of the PC supply chain that experienced increased inventory levels did so because of sluggish demand in various key end-markets, attributable to the weak global economic environment.

PC semiconductor inventory, for example, rose 10 percent sequentially in the third quarter, primarily due to an oversupply in chip inventory at Intel. Management at Intel cited a weaker-than-expected demand environment, with the chip maker’s customers continuing to administer very lean stockpile quantities when they would have normally expected an increase.  

The lone exception among sectors that saw increased inventory DOI during the period was semiconductor distributors. Unlike the others, the group succeeded in maintaining relatively lean inventory levels in the third quarter, confident that replenishment stock could be availed of quickly. This was because semiconductor suppliers had plenty of capacity available, and lead time to obtain product was short.

Apart from the weak global economic environment, the broader PC market is figuring out other ways to better manage inventory. Some near-term hesitation can also be seen on the capital spending front on the enterprise and corporate front, and the continuing cannibalism of PCs by hugely popular tablets and smartphones remains problematic.

Read More >> Windows 8 Launch-or Weak Macroeconomy-Drives PC Channel Inventory Higher?