UPDATE: PC Demand is Deteriorating and Commercial Checks Cautious – Morgan Stanley
2022.08.11 18:26
UPDATE: PC Demand is Deteriorating and Commercial Checks Cautious – Morgan Stanley
By Sam Boughedda
(Updated – August 11, 2022 10:55 AM EDT)
A Morgan Stanley analyst told investors in a research note Thursday that consumer PC demand is deteriorating and commercial checks are getting more cautious.
As a result, the analyst reduced revenue and EPS forecasts for HP Inc. (NYSE:HPQ) and Dell Technologies (NYSE:DELL) by 1-3%, reiterating an Equal-Weight rating for Dell and an unchanged price target of $56 and an Underweight rating for HP Inc., cutting its price target to $30 from $31.
“While weakness in consumer PC demand is well-known, we don’t believe the market is fully underwriting the incrementally worsening consumer sentiment and demand (including in gaming) we have captured in our checks in the last 3 months as consumers pull back even more on PC spend following 2 years of record growth,” said the analyst. “At the same time, we are seeing evidence in our CIO Survey, VAR checks, and Notebook ODM builds/commentary that PC order pull-forward from 1H22 (to get ahead of long lead times) and Hardware budget cuts are resulting in new enterprise PC order cancellations, deal push-outs, and fewer PC deals in the pipeline.”
The analyst added that given “already elevated levels of B/S inventory, and growing US PC channel inventory levels, PC OEMs and component vendors are reportedly responding by cutting shipment projections.”
He continued: “As a result, we are further reducing our global PC market shipment forecast by 6% and now expect 284M shipments in CY22, down 17% Y/Y (with C2H22 shipments now lower than C1H22), implying PC replacement cycles extend from 3 years at the height of COVID-driven demand to 4 years at the end of 2022, more in-line with pre-COVID PC replacement cycles.”
Morgan Stanley expects demand challenges to pressure PC ASPs and drive a normalization in PC OEM profitability.
