Why Global PC Shipments Are Worse Than Expected

• Shares of Apple Inc, AAPL and HP Inc. HPQ have been trending lower in January 2016.
• Credit Suisse’s Kulbinder Garcha maintained Outperform ratings for the two companies, with a price target of $140 for Apple and $19 for HP.
• While global PC shipments in 2015 were short of expectations, both HP and Apple recorded increased shipments, Garcha noted.

Global PC shipments in CQ415 stood at 71.9 million, marginally lower the Credit Suisse estimate of 73 million units. Analyst Kulbinder Garcha believes that the 2015 shipments were negatively impacted by forex related concerns and geo-political uncertainty.

Garcha expects 2016 to be a better year, with increased adoption of Windows 10 and growing demand for the latest Windows package, given various security issues. There could be a modest pick-up in replacement rates, driven by an aging install-base and new touch-friendly form factors.

“As noted by our CS Asia PC sector team in their 2016 Outlook, 12" display size and above hybrids such as Surface Pro; and gaming notebooks will likely be the key PC drivers,” the Credit Suisse report stated.

HP

IDC reported preliminary HPC 4Q15 shipments of 14.3mn units, up 2.8 percent q/q and down 10 percent y/y. Garcha noted that while global PC shipments fell short of expectations, HP performed ahead of expectations and increased its global market share to 19.9 percent.

The company is expected to post FY16 revenues and EPS of $46.4 billion and $1.60, respectively. “We note that there may be upside to our F1Q16 revenue estimates, given conservative ASP assumptions for C4Q15 vs. historical trends,” Garcha added.

Apple

According to IDC data, Apple’s shipments during C4Q15 declined to 5.7 million units from 5.8 million in the previous quarter. The company enjoyed a market share of 7.9 percent during the quarter.

“Despite global PC shipments declining in CY15, from 308.4mn units in CY14 to 276.2mn units in CY15, Apple shipments grew from 19.6mn units in CY14 to 20.8mn units in CY15,” Garcha wrote.

The analyst expects the iPhone cycle to remain subdued for the next few quarters. He forecasted iPhone units of 76.9mn for the December quarter and of 51.9mn for the March quarter, while seeing risk to the downside.

Apple’s high retention rate, continued installed base growth and optionality of a low-end iPhone make the stock an attractive long-term investment.