PC health barometer: A few mixed signals, but solid overall

PC demand is healthy, but back-to-school demand was just ok, Dell has been hampered by component shortages and overall memory prices are declining. That barometer comes via a research note from Citigroup analyst Richard Gardner.

At a high level, Gardner concludes that there is no slowing in global PC demand. He is projecting at least 14 percent unit growth in 2007. However, there are a few items that could be worrisome.

Among the key takeaways:

• Back to school demand was at "the low-end of normal seasonality in August," says Gardner, who added that "September appears to have picked up." In September, retail unit growth was up roughly 18 percent to 20 percent from a year ago. In August, unit growth was up 10 percent from a year ago.
• Gardner reports that HP canceled consumer desktop and notebook orders from suppliers in Asia in August. The analyst, however, notes that this move "is entirely normal for the first month of the fiscal quarter" ahead of the holiday inventory build. "Sources confirm that no other major OEMs have reduced orders in recent months, and that HP’s revised forecasts continue to suggest above-market growth," says Gardner in a research note.
• Shortages of LCD displays and notebook casings have hampered Dell's consumer and small business revenue, says Gardner. Dell's troubles of late have been well documented. Gardner reckons these supply problems were resolved in September. Dell's third quarter revenue appears to be tracking in line with estimates due "to solid demand in U.S. federalgovernment and large corporate.
• Overall supply of PC components--flat panels, battery packs and power management circuits--seems to be improving. With the exception of Dell, most PC makers have indicated that supply chain issues haven't hampered shipments.
• Component pricing is improving. Flash memory contract prices--both DRAM and NAND--have declined as of September. Flat panel increases have been modest. Overall, the cost to make a PC has fallen for PC makers, says Gardner.
• PC demand is expected to slow in 2008 to growth of 11 percent, projects Gardner."Even with slowing U.S. consumer demand, we believe that global PC unit shipmentsarepoisedto grow 11%+ in 2008. However, the competitive environment in U.S. retail will be tougher," writes Gardner.