I use my computer a lot. I’ve written over 8,000 articles in the past 12 years and edited countless more. Needless to say, like many, my computer is essential to my day-to-day, and that doesn’t include all the time I use it to stream movies and shows, or keep tabs on the latest news.
My current machine, a Hewlett-Packard All-in-One, is hardly cutting-edge. I bought it in 2020 during Covid. It’s powered by an AMD Ryzen 5 3500U, a chip old enough that Gemini tells me it’s “significantly out of date in both speed and power efficiency.”
Still, it gets the job done, and while I thought I might need an upgrade because of AI, I really haven’t noticed a dramatic enough lag to prompt me to buy a new HP or Dell.
That appears to be the case for many people. While Hewlett-Packard and Dell racked up a combined $62.7 billion in sales last quarter, both companies sold fewer PCs as businesses and consumers put off purchases due to rising prices.
“Total units were down 16% with Consumer PS [personal services] units down 19% and Commercial PS units down 14%,” wrote HP in its recent earnings release.
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A waning appetite to upgrade PCs is bad news for HP, Dell, and rivals, especially since fixing the problem won’t be easy due to mounting cost pressures, according to a Morgan Stanley research report shared with me.
HP, Dell face PC sales headwind
In Hewlett-Packard’s fiscal third quarter, revenue from consumer and commercial PC sales increased, but that was due to higher prices, not selling more computers.
“Yes, you’ve got unit decline going on, which has been well built into our forecast and the industry forecast out there,” said HP CFO Karen Parkhill at Goldman Sachs Communacopia + Technology Conference in September. “The decline is more from the lower end of PCs.”
The impact on the lower end of the market has prompted management to pivot toward pricier machines.
“While volume was down as expected, our continued prioritization of higher-value unit placements, repricing for higher commodity costs and services expansion more than offset the volume headwind,” said Parkhill in August on the company’s earnings conference call.
That strategy may work only so long, given the long upgrade cycle and the fact that many more people buy at the lower rather than the higher price points. Unfortunately, the company doesn’t expect demand for inexpensive PCs to rebound anytime soon.
In September, HP filed a report with the SEC telling Wall Street to expect soft demand into next year: “Consistent with current third-party industry forecasts, HP’s preliminary planning assumption is that industry-wide personal computer unit volumes decline roughly mid-single-digits in percentage terms in calendar year 2027.”
Unsurprisingly, HP’s share price has fallen 16% from its September high. But HP isn’t alone in feeling the shift. Dell has similarly seen headwinds from soft consumer demand, leading it to shift its focus to AI servers.
“So one tangible example, we would have taken a decision in the springtime for seeing the PC market, particularly in consumer, was going to get squeezed a little bit. It’s projected to be minus 18% to minus 20% on units,” acknowledged CFO David Kennedy at last month’s Goldman Sachs technology conference.
The consumer boycott has everyone wondering how long the drag on the PC market will last. Morgan Stanley analyst Erik Woodring took up the subject directly in his report, “Rising ASPs and Slowing Demand Pressure PCs Into 2027.”
“Windows 11 refresh demand and commercial pull-forward have abruptly slowed, consumer demand is even softer, and supply-chain shortages appear to be
worsening – and with PC prices expected to continue climbing, we believe 4Q PC
shipment Y/Y declines will deteriorate further,” wrote Woodring.
PC market tumbles as supply problems send prices soaring
Surging prices are the biggest reason PC buyers like me are on strike.
Over $1 trillion is being spent this year on AI, according to Goldman Sachs, and much of that is going to high-end servers deployed increasingly in data centers. These servers feature top-of-the-line GPUs and ASICs from Nvidia, AMD, and Broadcom, and they’re packed with memory, including high-bandwidth memory from SK hynix, Micron and Samsung.
The flood of money into hardware is taxing supply chains, driving prices up, and leading chipmakers to deprioritize chips designed for everyday machines, further increasing scarcity and pressuring prices.
“Costs for AI server dynamic random-access memory (DRAM) roughly doubled during the first quarter of 2026, with an expected fourfold increase for the full year,” wrote Deloitte in report entitled ‘Why the memory chip crunch is greater than expected, and may not ease until 2029’ in July. “Memory chip industry insiders and market analysts are calling this scarcity-driven surge in chip prices “RAMageddon.”
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The long and short of it is that HP, Dell, Acer, and others are spending much more money today to build their PCs than they did one year ago, which has forced them to raise average selling prices (ASPs).
“We estimate 3Q global PC ASPs rose to over $1,200, nearly 40% above early 2025 prices, and expect pricing to rise even further as PC OEMs attempt to protect margins during a period of record inflation, with ASP per device reaching over $1,300 by mid-2027,” wrote Morgan Stanley’s Woodring.
Morgan Stanley thinks the problem stretches into 2027
Higher prices aren’t the only problem. Woodring also notes that enterprise buyers are shifting IT spending away from PC upgrades toward AI itself, and that middlemen are increasingly avoiding building inventory.
“As a result, we forecast PC shipments deteriorating further in 4Q, with our new estimate calling for 28% Y/Y shipment declines,” wrote Woodring.
Worse, he says PC shipments’ weakness will stretch into 2027, with calendar-year shipments falling 11% from 2026 levels. That’s about 7% worse than the Wall Street consensus.
The outlook is supported by the latest IDC research data, which shows Q3 shipments down 21% from one year ago, compared to just a 1% drip in the first six months of this year.
“Channels are now worried about carrying too much inventory into a market where high prices are suppressing demand,” wrote IDC research director for consumer devices Jitesh Ubrani.
Morgan Stanley estimates HP and Dell saw PC unit sales drop 32% and 27%, respectively, in the third quarter.
Woodring also believes PC makers may not be able to fully pass along their higher supply costs, which could drag on profits, leading him to issue a dour outlook for HP and rival Acer, which are more concentrated on less expensive computers.
“This makes us incrementally more cautious on the entire PC complex, and would highlight HPQ (41% downside) and Acer (25% downside) as our highest-conviction global PC OEM underweights,” said Woodring.
Overall, Woording’s HP stock price target is $19.
As for Dell, he thinks it will hold up better than HP and Acer because it is more focused on higher-end machines and enterprise deals. He rates it “equal weight,” with a stock price target of $499.
