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February 3, 2016
Greetings.
In this issue: Flat sales of PCs spell bargains for buyers. The market for semiconductors. Superfast home Internet service. What to make of Apple stock?
A Good Time to Buy a PC
With sales of personal computers largely flat this year amid slack demand and the shift to a variety of mobile devices, buyers will be in the driver's seat, with an abundance of high-quality new computer models to choose from.
Businesses looking to upgrade PCs in coming months should find plenty of bargains. More firms will consider 2-in-1s, where touch screens detach from the laptop keyboard to turn into a tablet. Powerful productivity apps in the works will make work chores simpler on touch screens. Tablets designed for professionals, including Apple's iPad Pro and Microsoft's Surface, will grow more popular with businesses. Over the next few years, touch screens will move from a cool feature to a must-have for many businesses.
"It's like the scene in Indiana Jones: ‘You must choose, but choose wisely,'" says Rhoda Alexander, director of broadband media at IHS. Those with money to spend will find a slew of top-notch laptops, 2-in-1s and all-in-one desktops, with new features such as enhanced security, biometrics and better-looking displays. Many of the latest PCs come with Intel's new chip design Skylake, which improves performance and enables thinner designs. Most folks are due for an upgrade because the average PC is ancient by historical standards; many are more than five years old. Alexander notes that standout premium models include Lenovo's ThinkPad X1 Yoga, HP's Spectre x360 and Dell's XPS 13. (Continued below.)
In the sluggish marketplace, desktops and laptops will take the biggest hit, hurting top makers Lenovo, HP, Dell, Asus and Acer. Still, sales this year will shape up to be a lot better than the 10% decline suffered in 2015. "I think parts of the PC market are starting to stabilize," says Ian Ing, a semiconductor analyst at MKM Partners. Ing notes demand picking up in North America for new models. Other bright spots include surging sales of PC tablets, such as Microsoft Surface, and Apple seeing its computer sales on the rise.
The Outlook for Chips
The semiconductor industry will barely eke out a small sales gain this year. Global sales hit $333.7 billion last year, according to Gartner, and they'll tick up just 1%-2% in 2016. The outlook for semiconductor sales will move in tandem with global growth throughout the year (so an upgrade or downgrade in global GDP will be reflected in chip sales). Chip makers are crossing their fingers that a new product will jump-start growth, but they'll be out of luck in the near-term. All the likely candidates virtual reality headsets, wearables and other connected gizmos just don't have enough oomph to make up for the loss in traditional categories such as PCs. (Here's a list of the top chip sellers.)
All eyes will be on mobile phones, which make up a big slice of chip sales. Mobile chip makers profiting from smartphone sales include Qualcomm, ARM and Samsung. Intel, still struggling with mobile, is working feverishly behind the scenes to win a contract with Apple for cell modems. Mobile phone shipments worldwide are expected to see paltry growth of just under 3% for 2016, according to Gartner. But growth could be worse if China's growth slows much further or new phones don't catch on quickly. A key to growth for mobile chips: The success of new iPhones and Samsung Galaxys.
Technology in the Pipeline
The future remains bright for chip technology as the industry pours money into research. Spending on global semiconductor research and development was a whopping $56 billion in 2015, according to the market research firm IC Insights. The investment was led by Intel's $12 billion, followed by Qualcomm, Samsung and Broadcom; each spent more than $2 billion. Among the promising advances: A new memory chip from Intel and Micron that harnesses a breakthrough design and will be used in data centers. Prototype chip designs that will pack billions more transistors on each chip. New chips designed for artificial intelligence. And a bigger push by chip makers and software companies into quantum computing.
Better times will return in 2017 for the electronics industry. PC sales will likely see stronger growth in 2017, aided by companies upgrading to Windows 10 and buying new computer fleets. Semiconductor sales will benefit from the stronger PC market, as well as from growing sales in areas such as autos and data centers. Longer term, a number of promising trends figure to lift the market, including the rollout of next-generation 5G wireless networks, a bigger push to cloud computing and swifter adoption of technology for the Internet of Things. The electronics industry, including companies that make chips, computers and mobile phones, could hit pay dirt with a number of breakout products in the next three to five years.
A New Competitor for Home Internet?
A new start-up plans to deliver superfast home Internet via wireless technology. The company, Starry, wants to compete with dominant home broadband providers by eliminating costly wiring to homes or apartments and passing on the savings to consumers. The service will use special antennas attached to outside walls that collect Starry's wireless broadcast. Questions linger on the effectiveness of Starry's proprietary technology and how much it will cost. But there's no doubting the potential of high-speed broadband using a section of airwaves called millimeter wave that Starry plans to use. That particular spectrum has huge bandwidth capacity over short distances and will play a big role in upcoming 5G networks.
More companies will launch similar wireless tech, but federal regulations stand in the way. "We're definitely at the point where firms can start deploying the technology," says Gus Hurwitz, assistant professor of law at the University of Nebraska College of Law, who closely follows the issue. "The Federal Communications Commission is the only thing holding back millimeter wave fixed wireless today." Starry has been in touch with the FCC, but it's likely regulators won't be quick to cut red tape, even though European and Asian countries are moving quickly to use the airwaves for 5G. Hurwitz notes that the most exciting impact, once the tech is unleashed, could be in hard-to-reach rural areas.
Tech Tidbits
- Four companies in the tech & telecom arena made Kiplinger's list of "Solid Stocks for a Shaky Economy." During economic downdrafts or broad stock market declines, Alphabet, American Tower and Oracle "should be more stable and suffer less collateral damage than weaker rivals."
- Curious about what to make of Apple stock? My colleague Daren Fonda, associate editor of Kiplinger's Personal Finance magazine, takes a look, making the case that "Apple's Stock Is Becoming Too Cheap to Ignore." From the article: "Few stocks are as confounding as Apple. The world's most valuable company worth $521.7 billion is hauling in some $50 billion in revenues every three months. It sits on $216 billion in cash and securities. And it earned a record $18.4 billion in the three-month period that ended December 26, 2015. No other company comes close to numbers that titanic. Yet Apple's gargantuan size may be its greatest obstacle."
Sincerely,
John Miley
jmiley@kiplinger.com
@johntmiley
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