The real problem comes from trying to identify a human need which is not being met, and which requires more advances in technology. Not only is it impossible to imagine this “need”, it becomes murkier due to the fact that the internet’s speed has not been improved enough to imagine the possibilities of even faster access to data. It becomes difficult to imagine what other needs humans may have which are not being met. Perhaps, the computer is not dead, but the market for desktop computers is giving off mixed signals.
Hardware manufacturers will slog through the mud
For now, investors should anticipate stagnant computer sales. Analysts forecast earnings growth at 0.25% on an average over the next five years for Hewlett-Packard Company (NYSE:HPQ). Hewlett-Packard is a victim of a slowing upgrade cycle; when things were heating up in the late 90s and early 2000s, consumers would replace computers every two or three years.
Kids would pick up the PC Gamer magazine thinking about the past, present, and future of computing. Computers and their uses seemed limitless; we would never forget the transition from single core to dual core. Then, all of a sudden, demand started to drop off in the late 2000s. It all came down to utility and alternatives. Consumers preferred an older desktop computer, but in return a “new smartphone.”
Desktop sales may decline over the short-term. But, over the long-term, I anticipate growth to stabilize as computers are irreplaceable. Phones aren’t a “true” replacement for content creation and complex computing needs. Therefore, computers will eventually turn around through a product upgrade cycle, with sales growth likely to stabilize at rates similar to economic growth, population growth, or inflation (basically low single digits).
Dell Inc. (NASDAQ:DELL)’s earnings growth is projected to be at 9.67% over the next five years. Analysts are anticipating higher earnings growth from Dell as unlike Hewlett-Packard Company (NYSE:HPQ), it has less goodwill impairment related charges. Dell Inc. (NASDAQ:DELL)’s business portfolio is better diversified with half of the revenue coming from enterprise, software, services, and peripherals (which have higher growth rates and higher margins than desktop computers).
Dell Inc. (NASDAQ:DELL)’s desktop and mobility represent 50% of revenue, and may see some improvements due to the tablet computers that are coming from Dell Inc. (NASDAQ:DELL).
Conclusion
The desktop computer involves the participation of many technology firms. At some point in the future, I anticipate the desktop computer to recover. Some new application and new uses that have not yet been identified will cause an unprecedented upgrade cycle. Superior uses for computing will soon be unlocked due to faster internet speeds and better artificial intelligence.
In the mean-time, low single-digit growth in desktop computers should be anticipated. Further out, a computer revolution will cause statisticians to jump out of their seats as the markets identify and execute upon the next big thing.
The article Technology Will Be Driven by Human Needs Rather Than Faster Speeds originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
