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You won’t believe how little Windows PC makers earn for each PC sold

Discussion in 'Off-Topic Discussion' started by sparkyscott21, Jan 10, 2014.

  1. sparkyscott21

    sparkyscott21 Moderator Staff Member

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    The PC market is not a very good business to be in right now. Growth is slowing,Windows 8 isn’t helping, and vendors are rehashing old gimmicks in an effort to turn things around. Beyond declining shipment figures and sinking average selling prices (ASPs), there is another number industry watchers keep their eye on that will almost certainly shock people who don’t follow the PC business closely: the amount of money, on average, that PC vendors make for each computer sold.

    The Guardian’s Charles Arthur on Thursday issued a report covering the PC market following the news that LG is considering a departure from the traditional PC business to focus on tablets. The entire report is a good read, but one area of Arthur’s research is of particular interest.

    Using publicly available data from quarterly financial reports issued by five of the top PC makers in the world — HP, Dell, Lenovo, Acer and Asus — Arthur calculated how much it costs these Windows PC makers to build each computer and how much profit each box yields. The five aforementioned vendors combine to make up 60% of global Windows PC shipments, so this is likely a good measure of the industry as a whole.

    According to Arthur’s number crunching, Windows PC ASPs have declined from $614.60 as of the first quarter in 2010 to $544.30 in Q3 2013. Last quarter’s financial results have not yet been reported, so revenue and operating profit data is not yet available for the fourth quarter.

    It’s no mystery that PC prices are falling, of course, but another figure unearthed in Arthur’s calculations will likely surprise you: $14.87.

    That figure represents the amount of profit Windows PC makers earn on average for each PC they sell, as of the third quarter last year. Less than fifteen bucks. That number is down from $15.71 in Q1 2010 even though margins have actually improved from 2.55% to 2.73% during that time, with sinking retail prices the obvious culprit.





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    PC makers first turned to high-margin smartphones in an effort to drum up new profits in the face of the withering PC business, and then tablets. Now many companies are dabbling with hybrid devices, Chromebooks and wearables. If you were wondering why all these vendors are trying so desperately to identify and capitalize on the next big thing, now you have your answer.



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  2. jonw747

    jonw747 Well-Known Member

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    Profits are calculated after all expenses and overhead are accounted for. It's not to be confused with the product markup over the cost of the goods.

    Anyway, the PC market has been commodity driven since the early days. The amazing thing is that a company like Dell has survived this long when faced with mom & pop shops that will assemble the cheapest parts available for very little margin.
     
  3. ChrisG8

    ChrisG8 Well-Known Member

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    That is a terrible return on investment but at least it is a profit. I think TV manufacturers, the standard bearers like Sony and Panasonic have been losing money on TV sales.

    I don't think PC prices can continue to drop and allow companies like Dell and HP to continue to compete. Of course IBM dropped out years ago. I am using a Dell laptop and an Acer laptop now, both are old and I sure hope both continue to work for years. If Dell and Acer are still in the market and price competitive, I will consider those brands when I buy another computer. I don't think I can make a tablet meet my needs, even in a few years, but I know a lot of other people seem to be able to make a tablet work.
     
  4. jonw747

    jonw747 Well-Known Member

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    It also depends how they're able to leverage those PC sales. For instance, you wouldn't declare a restaurant to be in sorry shape because they're not making a profit on their food entree's when they do that on purpose knowing full well they will turn a ridiculous profit on alcohol sales.
     

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