The weak 1Q PC shipment data have sparked the market’s concern about whether the tablet PC cannibalization as seen in mature countries will be replicated in emerging markets, such as China’s low-tier cities, due to the surge in low priced tablet PCs. We argue that the PC slowdown in China is more cyclical (macro slowdown + government transition) than structural (tablet PC cannibalization).
The weakness in PC shipments has come mainly from the consumer and SMB segments, which have been affected by macro slowdown. The government and education segments were particularly weak in 2012, likely affected by the government transition.
The mature cities in China & India (i.e., tier 1-3 cities) will behave more like mature countries and thus be affected by tablet PC cannibalization. In emerging areas in China & India (tier 4-6 cities and towns/villages), the lack of Wifi connection should limit the impact of tablet PC cannibalization.
It is less likely that low-priced tablet PCs will replace full-function PCs, not only because of the differences in computing power but also because of the lack of Wifi and the additional fee requirements for data plans for mobile connectivity, given the low PC penetration rate.