Vendor earnings, market research reports, and the International CES in Las Vegas this week highlighted the hardware arena, which appears to be a tale of two sectors with very different fates: PCs and mobile devices.
The PC market continues to be depressed, but smartphones and tablets, as well as their related components, appear poised for solid growth.
2012 ended with a whimper for the PC industry. Global PC shipments totaled 89.8 million units in the fourth quarter of 2012, down 6.4 percent year over year, according to an IDC report released last week. The fourth-quarter total was worse than the expected decline of 4.4 percent, IDC said. The bottom line was that Windows 8 did not boost the hardware market as much as expected. It was the first time in more than five years the PC market dipped year over year during the holiday season.
"The PC market continued to take a back seat to competing devices and sustained economic woes," IDC said in a statement accompanying the report.
Windows 8 PCs were themselves to blame to some extent.
"Consumers expected all sorts of cool PCs with tablet and touch capabilities. Instead, they mostly saw traditional PCs that feature a new OS (Windows 8) optimized for touch and tablet with applications and hardware that are not yet able to fully utilize these capabilities," said Jay Chou, senior research analyst with IDC's Worldwide Quarterly PC Tracker.
Morgan Stanley is concerned enough about these issues that it downgraded its recommendation on Microsoft's stock. The investment bank changed its Microsoft rating from Overweight, the equivalent of a "buy" ranking, to Equal Weight, or a "hold." Morgan Stanley analysts wrote in a Thursday research note that they don't expect improvement in the PC market anytime soon because, among other reasons, businesses' upgrade cycle to Windows 7 is getting closer to completion.
While Microsoft has insisted that the more than 60 million Windows 8 licenses sold so far are in line with Windows 7 sales at a similar point in its release cycle, those licenses are what have been shipped to vendors—not necessarily copies of Windows installed on machines that have sold through to end users.
Other analysts also had a dour outlook.
"We believe the PC market will continue to face headwinds in 2013 with high PC platform prices and little Win8 excitement continuing to be a drag," said Sterne Agee in a research report this week.
The story is different for smartphones. On Tuesday, for example, Samsung Electronics reported that its operating profit rose nearly 100 percent in the fourth quarter as sales jumped for high-end smartphones and processors destined for mobile devices.
Samsung estimated that operating profit was 8.8 trillion won (US$8.2 billion) for the quarter ending in December, up from 4.66 trillion won a year earlier. It estimated revenue at 56 trillion won in the quarter. Final results are due by Jan. 25.
Market research reports indicated that December was a strong month for a variety of handset makers.
"Our December wireless store surveys indicated seasonally strong holiday smartphone sales with strong sales of the iPhone 5 and iPhone 4 at AT&T, Verizon, and Sprint and also in international markets," according to a Canaccord Genuity report this week. "Further, our analysis indicated strong Samsung Galaxy S III sales at all four tier-1 U.S. carriers and in international markets along with strong global Samsung Galaxy Note II sales."
The generally strong market for smartphones may even boost sales of Windows-based phones.
Nokia Thursday said it sold 86 million mobile devices in the last three months of 2012, including some 4.5 million Lumia smartphones. Revenue totaled about 3.9 billion euros (US$5.1 billion). For the same period in 2011, the company reported a fourth-quarter net loss of 1 billion euros with a 19 percent drop in revenue. The maker of Windows-based phones said it sold 15.9 million smartphones in the quarter, up from 6.3 million in the previous quarter.
But the company is not out of the woods yet.
"While these near-term results are encouraging, we maintain our belief 2013 remains a challenging transitional year for Nokia, especially as our meetings at CES and extensive handset sell-through store surveys indicate continued uncertainty about Windows 8 emerging as a viable long-term smartphone ecosystem versus Android and iOS," said Canaccord Genuity analyst Michael Walkley in a research note.
Social network expectations
For the moment, almost any announcement that appears to be smartphone- or tablet-related seems to boost a vendor's fortunes. Facebook shares have climbed in recent days as it gears up for an announcement next Tuesday that is rumored to be mobile-phone related.
Speculation has been breathless.
"We've been speculating for months that Facebook may be getting ready to enter the wireless phone business," said analyst Jeff Kagan in an email message sent to reporters. "Could this be what the big Facebook announcement is all about? A Facebook phone?"
Other analysts pointed out that Facebook CEO Mark Zuckerberg denied last year that he was interested in getting into the mobile phone business.
In any case, Facebook shares—long in the doldrums after its fumbled IPO last May—closed Friday at $31.72, $2.96 higher than its close a week earlier.
The tech earnings season unofficially starts next week, when Intel reports its earnings Wednesday.