As Windows PC profits evaporate, LG to exit traditional PC market

“Korea’s LG Electronics is said to be preparing to exit the traditional PC market, as worsening margins and sales make it uneconomic, presaging a shift to tablets, smartphones and ‘hybrid’ PCs,” Charles Arthur reports for The Guardian. “According to the Korea Times the company has even considered a wholesale exit from Windows PCs as its sales have shrunk. The conglomerate is struggling to turn itself around as a number of its divisions compete in low-margin sectors such as TV and displays.”

Read more in the full article here.

“The news that LG is considering quitting the traditional Windows PC business isn’t surprising. LG has always been a bit player in the PC market, with shipments of at best a few million PCs per year – in a market where the largest companies would expect to shift 10 times more,” Arthur reports in a related article. “As one unnamed LG employee told the Korean Times, exiting the PC business makes sense: ‘it doesn’t make sense to put more resources into the money-losing business.'”

“It’s not just LG that’s hurting. The PC business is in a slump which has seen year-on-year shipments (and so sales) of Windows PCs fall for five (imminently, six) quarters in a row, after seven quarters where they barely grew by more than 2%,” Arthur reports. “And it’s not only growth that’s fallen. Analysis by the Guardian suggests that as well as falling sales, the biggest PC manufacturers now have to contend with falling prices and dwindling margins on the equipment they sell.”

“My research took published data from the quarterly financial figures for HP, Dell, Lenovo, Acer and Asus, which together make more than 60% of the world’s Windows PC shipments,” Arthur reports. “The data shows that the weighted average selling price (ASP) of a PC has fallen from $614.60 in the first quarter of 2010 to just $544.30 in the third quarter of 2013, the most recent date for which data is available. Even worse is the profitability… By the third quarter of 2013, the weighted average profit had fallen to $14.87… Macs have an 18.9% profit margin… That metric gives a hardware per-[Mac] profit which has dropped from $241 to $232 – an erosion, certainly, but a margin that Windows PC makers would kill for: it’s more than 10 times greater than their per-PC profit.”

Much more in the full article here.

MacDailyNews Take: This chart is a year old. The situation likely looks better for Apple and worse for the PC box assemblers today:

Asymco: Percent of PC operating Profit, Q412

🙂

[Thanks to MacDailyNews Readers “Fred Mertz” and “Edward W.” for the heads up.]

Related articles:
Apple Mac sales surge worldwide – January 10, 2014
Gartner: Apple’s U.S. Mac sales surge 28.5% as Windows PC market drops 7.5% – January 9, 2014

46 Comments

        1. Actually, Micro$oft’s crap OS decisions have more to do with the PC decline than anything else. Winblows 8 has been an utter disaster. The PC manufactures want to hang on to Winblows 7 as long as they can but Micro$ucks won’t let them. They are shooting themselves in the foot. And leg. And thigh. And nuts. And arms……

  1. MS spent all their time defending the WinOff mountain, only to discover that customers don’t want to climb mountains anymore, they just want to take pictures of them.

    1. Remind me not to trust your logic if we ever needed accurate information about our opponents in a war setting. 1.4 billion PC users 100 million Mac users… How does this translate to winning this fairy tale war you speak of?

          1. Have you spent much time in corporate settings?

            The vast majority of Windows computers I see are barely more than electric typewriters — bargain basement machines that do little more than very simple word processing, simple data entry and recovery and billing. There is very little profit in such machines… and I’d say it’s certainly not worth it for Apple to try and replace them.

          2. Paul, how much is samsung paying these days?

            Or is it that you just love to tinker on machines and Apple gives you less of a playtoy?

            Just wondering.
            Ps. Cockroaches make the best pets sine there are many more of them than dogs or cats.

      1. The problem is that you and everyone else in the industry has been using the wrong metric. Look at the chart above. Looking at PROFITS instead of market share, Apple is clearly the king. It’s the same fallacy that the analysts scream about in the smart phone market. The object of this exercise is to MAKE MONEY, not give away hardware in order to have the biggest installed base.

        The current PC slump is as much Microsoft’s fault as anybody’s. Nobody wants the disaster that is Windows RT/8. Microsoft has not only created a disaster for themselves, they’ve taken down the PC manufacturers along with them. New Windows OS versions used to drive PC sales. Windows RT/8 doesn’t drive sales of anything.

        Meanwhile, due to the stagnation in the Windows world, and price wars, PC makers have not innovated. The new Mac Pro, even at $3K is a bargain, considering the capabilities it offers. And NOTHING in the PC world even comes close, at any price.

        So who won the PC wars? Apple did, just last month.

        1. You are mistaken, Windows RT/8 has driven sales. Of Macs that is. I have at least influenced 10-12 people in the past 12 months on switching to a Mac. My argument is simply. Learn to use a Mac or learn to use Windows 8, but you are going to have to learn a new OS. Windows 7 was there last best option. It has become increasingly hard for people to be able to buy a computer with Windows 7 installed.

          1. The large public utility I worked for until I retired last year has only just now gone from XP to Windows 7. As a Systems Administrator, I can assure you that Windows 8 will never be adopted at that company. There are whole business processes that would have to be redesigned and implemented. The cost and losses in productivity could never be justified. They will stick with Windows 7 until there is an alternative or they are forced to abandon it. My bet is on an alternative.

            Option #1 is that a new MS CEO institutes a housecleaning and initiates a new effort to develop a Unix/Linux based product with a user friendly desktop GUI, like OS X. I don’t think the MS board will permit this, since Ballmer and Gates will remain on the MS board. Too bad. It’s the only way to save MS.

            Option #2 is that somebody else does what I’ve described in option #1. Apple has already done so, but the enterprise IT hegemony refuses to adopt it. It’s too radical a change for them, and it ends their guaranteed employment keeping flaky MS systems running.

      2. “1.4 billion PC users 100 million Mac users …”

        And this is exactly *why* Apple won the PC wars – delusional PC fanbois only caring about market share, instead of profitability, or people actually wanting to use the product.

        People use Macs because they want to, they use PCs because they don’t know better. That’s been slowly eating at MS for a long time. And the PC makers’ constant need to slice their profit margins just forces them to turn out cheaper, and cheaper crap. It’s a vicious downward spiral, and your vaunted market share isn’t going to stop it from happening.

        1. There’s an even more subtle mechanism working here. There are people who actually need PCs, and there are people who have/had PCs, but didn’t really need that much capability to do the things they wanted to do. Hence the popularity of cheap netbooks that did email and browsing, and not much else. Apple has now gone after the latter group with the iPad, and it’s successfully cutting into PC sales among the 60% or so of folks who don’t really need the capabilities of a full blown PC or laptop. The beauty of it is that the iPad cannibalizes that lower requirement demographic much more than it does the core Apple desktop or laptop customer. This is one big reason why Mac sales are up 28% while PC sales are down 10%.

          1. “There are people who actually need PCs …”

            This is true – as is the rest of your comment.

            I should have said, “… they use PCs because they don’t know better, or they must. But generally not because they actually want to.”

      3. Ohhh – come – on !!!!!

        Just maybe a good measure of the success of a business would be — profit? As in Apple’s iPhone division ALONE make more profit than ALL of Microsoft.

  2. No Apple is not doing any better. Unless you have money to burn a solid PC or Mac can last you a very long time. People are simply not buying new PC’s or Mac’s to replace good equipment. BTW I did not even realize that LG even played in the PC space?

  3. My main question would be how is the percentage of PC profits relative to each vendor calculated? More specifically how is the figure of 45% derived for Apple. As far as I know Apple does not break down profits based on Mac sales. I’d be interested to learn how Horace arrived at his conclusion.

    Again Dell is #3 in terms of numbers of PCs sold, behind Lenovo and HP, yet it’s #1 in terms of profitability amongst PC manufacturers. Can this be right? If Dell is #1 in terms of PC makers profitability, why is Michael Dell taking the company private? Something doesn’t smell right.

    1. You need to keep two things in mind; one dell was the 600lb gorilla of the windows PC market and two, that chart is a year old. Dell was falling quickly last year when that “snapshot” was taken, they are in a far worse position now then they were a year ago.

      1. “LG Corp. founder Koo In-Hwoi established Lak-Hui Chemical Industrial Corp. in 1947.[3] In 1952, Lak-Hui (pronounced “Lucky”, currently LG Chem) became the first Korean company to enter the plastic industry. As the company expanded its plastic business, it established GoldStar Co. Ltd. (currently LG Electronics Inc.) in 1958. Both companies Lucky and GoldStar merged and formed Lucky-Goldstar.”

  4. The desktop isn’t going away. There won’t be as many going forward, but we’ll always need desktops. And not just for the professionals either. Apple’s share of the desktop market will continue to grow. While not the great revenue stream/profit maker that it once was, it will still be very important to the Apple ecosystem. Apple will continue to make quality desktop computers while the PC manufacturers will have to keep cutting costs to stay in business. Thus ensuring more sales for Apple desktops. Schools and businesses will not try to save money by buying junk desktop computers. They have to buy something that is going to last. So they have to buy something that is a good value for their money.

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