Personal Computing Market Volatility Lingers in 2015

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Personal Computing Market Volatility Lingers in 2015

The personal computing market continues to evolve as new device demand shifts to reflect the ongoing changes in vendor pricing strategy. Case in point: worldwide media tablet shipments fell 12 percent year-on-year to 67 million units in Q4 2014, according to the latest market study by Canalys. The desktop computer market fell back into a decline in the fourth quarter, as demand for Microsoft Windows XP upgrades decreased. Moreover, the notebook PC market held firm with another quarter of just 1 percent growth.

Clearly, the overall personal computing market has been somewhat volatile. Given the current market outlook, that’s unlikely to change in the foreseeable future.

Total PC shipments (desktops, notebooks and tablets) fell by 6 percent in Q4 to reach 148 million units, resulting in full-year 2014 shipments of 528 million units, that’s up by just 3 percent on 2013.

Apple regained the top spot in the PC market on the strength of holiday sales, with just under 27 million units shipped. Lenovo’s shipments grew 6 percent year-on-year to almost 20 million units as it increased its market share to 13.3 percent.

Meanwhile, Samsung dropped out of the top three to make way for HP, with growth of 17 percent driving shipments over 17 million units — that’s their best quarter since Q3 2011.

However, Apple’s year-on-year tablet shipments declined once again — down by 18 percent. That performance is now the fourth quarter of this downward trend for Apple.

Second-placed Samsung could also not repeat its media tablet success of Q4 2013, with its first annual decline of 24 percent to 11 million units.

“Despite a strong sequential uplift in tablet shipments, the total market contracted for the first time in Q4, as expected,” said Tim Coulling, senior analyst at Canalys.

In addition to the slowdown at the top of the tablet market, the low end also suffered significant declines. In Q4 2014, 7″ tablets made up half of total Google Android tablet shipments, a segment that has seen steady declines from a high of 66 percent in the first quarter of the year.

In the notebook PC market, Windows with Bing has proved to be a success in volume terms as Microsoft responded to increasing competition from Google Chromebooks in certain markets. The new price points it enabled stimulated notebook demand in Western Europe and the U.S. market.

This development impacted tablet sales in these markets in the fourth quarter, as consumers opted to replace aging notebook PCs. Canalys expects declines in the first half of 2015 as notebook PC inventories re-balance and the subsequent retail price increases will likely stifle further consumer demand. That being said, we can therefore anticipate continued market volatility.

computer market volatility / shutterstock

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Forget Netflix’s stock volatility, the real news is its long-term plan is taking shape

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netflixAnother quarter, another huge gap in Netflix’s stock price as investors sift through the messy tea leaves that is its quarterly letter to shareholders.

After rising 3 percent during trading hours Tuesday, Netflix’s stock rose another 16 percent in after-hours trading following the company’s earnings report for the last three months of 2014. That rally brought Netflix’s stock as high as $ 404 a share, its highest level since, well, since its last earnings report.

Only three months ago, Netflix shares lost 25 percent of their value in one day after investors freaked out about its financial metrics. The key issue then was tepid US subscriber growth, which not only declined year-over-year but was below what many analysts were forecasting.

This time, subscriber growth in the United States was still below what it was one year ago, but it was above analyst expectations. Netflix said it added 1.9 million domestic subscribers for its streaming video service last quarter, slightly ahead of the consensus forecast of 1.85 million additions. Believe it or not, that very modest surprise appears to have been enough to add $ 3.3 billion to Netflix’s market value.

But this is nothing new for Netflix. And judging from comments from CEO Reed Hastings, it’s the kind of thing that can drive a CEO crazy. Every quarter, Netflix gives plenty of different metrics on its business operations – some encouraging, some discouraging — but the ones that drive the stock movement in the short term can be pretty random.

For example, today’s report also brought evidence that Netflix bears took as worrisome signs. Netflix is forecasting a net profit this quarter of 60 cents a share, well below the 77 cents that Wall Street had been forecasting. What’s more, free cash flow – a measure of how much money the core business is generating – fell to negative $ 78 million, its worst free-cash-flow figure in years.

And yet investors zeroed in on the net-subscription-growth figure. But even here there was some worrying news. In October, Netflix explained the slowdown in subscriber growth as a function of an increase in its monthly fee for new subscriptions. On further examination, Netflix now believes the real reason is longer-term – and more disconcerting. As the company said in its letter to shareholders,

With additional research, we now think that the decline in y/y net adds would have largely taken place independent of the price change… We think, instead, the reduction in y/y net additions is a natural progression in our large US market as we grow.

In other words, now that Netflix is in a third of US homes, it’s already showing signs of market saturation blunting its potential for future growth. There are two reasons why investors would shrug off this bad news: because they’re too busy covering short positions, or because they are actually beginning to buy into the long-term case for Netflix that Hastings has been making for years.

As if telling a child for the hundredth time that vegetables are good for him, Hastings spelled out, sometimes in bold text, the Netflix game plan: “It is increasingly clear that virtually all entertainment video will be Internet video in the future. We’ll continue to improve our content, our marketing and our service, to eventually achieve ‘must have’ status in most households.”

Hastings and CFO David Wells also explained that Netflix original content, like House of Cards and the critic-drubbed Marco Polo, cost less money than licensed content, and that Netflix will continue to spend cash over the next couple of years on new original content, even if it means taking out more debt to do so. (Also, critics may have hated Marco Polo but many viewers in various countries loved it enough that Netflix is supporting a second season.)

The slowdown in US subscriber growth may well be offset by Netflix ambitions in overseas markets. The company added a net 2.43 million subscribers in Canada, Latin America and Western Europe. This quarter it will be launching in Australia and New Zealand, with plans to enter other high GDP-per-capita markets soon after. On a conference call, Hastings said Japan and South Korea are possibilities, while the company’s move into China will be cautious.

Overall, Netflix now offers its premium subscriptions in about 50 countries and plans to accelerate that quickly to 200 countries. Unlike Amazon’s Bezos, Hastings is willing to offer a specific deadline: Netflix will complete its global expansion in two years and “generate material global profits from 2017 onwards.”

Netflix core vision hasn’t changed much in a decade – be the first to offer high-quality streaming video to as many people as possible, with the goal of being, if not the industry leader, then one of the few must-have video providers. What is new is the company putting a clear goal on turning that vision into steady global profitability.

That clarity may not keep Netflix stock from the volatile swings that seem to afflict it with every earnings report, but it should come as encouraging news to investors who have held onto the stock during all its turbulent rides.

PandoDaily

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