Posted November 23, 2022
By Ray Blanco
PC and Video Game Companies Falter Amid Weakening Demand
We saw the markets bounce up and down today as investors prepared for the long Thanksgiving weekend.
The holidays are coming up and companies are already bracing for a troubled Q4 with a lower-than-expected turnout in consumer spending.
Many companies rely on the increased spending during these months to boost earnings heading into the new year, but this year is looking a little different than in the past.
With record inflation and Covid lockdowns in China tightening supply chains, all signs point to struggling consumers spending less on gifts and more on necessities.
I suspect these developments will create problems for companies heading into the new year with disappointing Q4 earnings.
One industry bracing for reigned consumer spending is the video game industry.
Video game companies are coming off one of the hottest streaks ever, much of which is thanks to the pandemic…
Covid-19 had almost everyone in the world stuck at home on the couch, and many used the extra free time to play video games… more than they ever had in the past
On top of global economic factors tightening supply chains and the slowing of pandemic-era demand, these companies are also coming to terms this year with the strong dollar.
Specifically, one company feeling the heat is HP Inc. (NYSE: HPQ).
HP Needs Help
A common theme in tech right now is layoffs… and that theme has found its way over to the computer company, bracing itself for a round of layoffs.
HP recently stated that it is looking to cut nearly 10% of its employees, citing a drastic decline in demand for personal computers.
A decline that the company expects to continue into 2023
With a current total of about 60 thousand employees, HP announced on Tuesday that it will be laying off anywhere from 4,000 to 6,000 members of its workforce.
This acts as a piece of a business plan that aims to cut about $1.4 billion in annualized costs.
This is just another story of a tech company that saw rapid expansion during the pandemic and is now faced with overblown costs, forcing it to rapidly cut down.
Just last year the company had a payroll of about 51,000 people, adding nearly 10,000 and now looking to cut over half of that.
Also this week, another computer company reported disappointing earnings…
On Monday, HP's rival, Dell Technologies Inc. (NYSE: DELL), announced a 6% drop in revenue for Q3.
Part of that drop was a more drastic 17% decline in laptop and desktop sales across both consumer and commercial buyers.
These drastic earnings disappointments are chalked up to a sleepy demand for PC buying that is likely related to inflation.
Consumers are forced to decide between buying new tech toys or affording necessities like gas, food, medicine, and more. It’s a pretty easy decision if you ask me…
And given that inflation likely won’t start to curb in a meaningful way until next year, that dip in PC sales will continue into 2023.
This will undoubtedly put a damper on these companies' Q4 bottom lines.
Hopefully, these companies will be able to adjust to the slower demand and cut costs in a meaningful way while regrouping and putting a more efficient business plan in place for 2023.
Until then, I’m expecting these companies to falter further…