Spend Matters welcomes this guest post from IHS.
Computer prices continue their inexorable decline. Average selling prices (ASPs) in all categories of computers are expected to slip over the next several years, even as the characteristics of the computers continue to rise — faster processors, more memory, more storage. This follows persistent price declines for computers over the recent past. For 2013 and 2014, ASPs for computers in total fell 4% per year on average. Regarding input costs, solid-state drives (SSDs) are becoming an increasingly attractive alternative to hard disk drives (HDDs), particularly for mobile PCs. In 2014, one in five laptops shipped with a solid-state drive installed, and that number has only continued to rise. NAND memory, the basis for SSDs, has been coming down in price per gigabyte, as the subspace becomes increasingly competitive. In 2015 and 2016, the ASP for SSDs is expected to fall 7.9% annually. Price deflation for HDDs will see continued declines, as well, of 0.7% per year in 2015 and 2016.
On the supply side, computer manufacturing domestically is posting positive gains. In August 2015, industrial production was up 7.7% year-over-year. IHS expects to see the sector continue to post gains over the balance of 2015 and through 2016, with production rising 11% per year on average. Payrolls have also been on the rise; employment in the computer manufacturing sector rose 3.4% in 2014 and is up 2.5% y-o-y in August. There remains more than adequate room for production expansion. At this point, utilization rates remain low, at 68.1% in August, and have ample room to increase before beginning to place any pressure on final goods pricing. As it is, inventory is significant; in August, the inventory-to-shipment ratio was at 1.8 months. While output levels will continue to advance, it will likely be several years still before the domestic computer manufacturing sector is fully recovered.
Demand for computers will push higher over the near term. Growth rates over the next two years will be in line with long-term trends and tied to the continued expansion of IT within the corporate environment and to consumers continuously upgrading to leading-edge technology. Total real spending on computers, including both consumer purchases and business investment, is expected to average 11.2% gains in 2015 and 2016. Future improvements will be in contrast to recent historical disparity in end-market demand — over the last several years, consumer purchases have been unflagging while business spending has been hesitant. From 2012 through to 2014, real business spending on computers posted modest gains, increasing 2.4% annually. For its part, consumer spending continued without wavering, growing at an average annual rate of 12.5% over the same period. However, from this point forward, spending by both businesses and consumers on computers is poised to post strong advances.
Bottom Line: Looking ahead, ASPs for personal computers — including desktops, laptops and entry-level servers — are expected to average a 1.4% drop in 2015 and 2016, while enterprise servers are forecast to decline 0.8% on average during that period.