Computer Hardware

The computer hardware industry consists of companies that are involved in designing and manufacturing computer systems and components. The industry is made up of various segments, including PC monitors and projectors, printers and copiers, desktop PCs, storage units, laptops, tablets, and keyboards. The two biggest segments are laptops and tablets, which generated sales revenues of around $121 billion and $57 billion in 2022 respectively. 

This industry is a dynamic one, where technology and trends keep rapidly changing and become outdated in just a couple of years. It is also highly competitive, and companies have to make continuous and significant investments in research and development to maintain a competitive edge. Hence, most of the top players in the industry are also among the world’s biggest companies, such as Apple, IBM, Samsung, and Dell. 

QUICK TAKEAWAYS

• Computer hardware is a subsector of the technology industry along with software, semiconductors, and communications equipment. 

• Large-cap computer hardware stocks are risky, but they also have great growth potential.

• The industry is primarily impacted by changing interest rates, global technological transformation, government regulations, and the expansion of product portfolios. 

• Moving forward, the industry will have to transform its supply chain and will be central to the development of smart cities. 

STATS CORNER

GLOBAL COMPUTER HARDWARE INDUSTRY SIZE AS OF 2023

$705 billion

(Source)

ESTIMATED GLOBAL COMPUTER HARDWARE INDUSTRY SIZE IN 2027

$910 billion

(Source)

KEY PLAYERS

[WORLDWIDE, BY REVENUE]

(Source: Companies Market Cap | As of October 2023) 

[THE UNITED STATES, BY REVENUE]

Company Name	Revenue Generated	Revenue Generated	Revenue Generated	Revenue Generated	Revenue Generated
	2022	2021	2020	2019	2018
Apple Inc.	$394.3B	$365.8B	$274.5B	$260.2B	$265.6B
Microsoft Corporation	$198.3B	$168.1B	$143.0B	$125.8B	$110.4B
Dell Technologies	$101.2B	$94.2B	$92.1B	$90.6B	$79.0B
IBM	$60.5B	$57.3B	$73.6B	$77.1B	$79.6B
Cisco	$51.5B	$49.8B	$49.3B	$51.9B	$49.3B

(Source: Macro Trends)

• Apple (NASDAQ: AAPL): While Apple offers both hardware and software, it’s primarily a hardware company with the majority of its revenue coming in from iPhones, iPads, Macs, Apple Watch and other accessories.

• Microsoft Corporation (NASDAQ: MSFT): Microsoft is one of the world’s most successful technology companies that develops and sells a wide range of hardware, software, and consumer electronics.

• Dell Technologies (NYSE: DELL): Dell is a technology company that primarily focuses on personal computers, network servers, and software. It’s a holding company consisting of Dell, Dell EMC, Alienware, Secureworks, and Virtustream.

• IBM (NYSE: IBM): IBM has a diversified portfolio of offerings including computer hardware, software, and middleware. The company also provides hosting and consulting services in areas such as nanotechnology and mainframe computers. 

• Cisco (NASDAQ: CSCO): Cisco produces networking hardware, telecom equipment, and software, along with several other kinds of high-tech products. It specialises markets such as the Internet of Things (IoT), domain security, videoconferencing, and energy management.

KEY DRIVERS

• Interest rates: Computer hardware stocks are sensitive to changing interest rates. When interest rates in the economy rise, stock prices in the industry tend to fall. This happens for multiple reasons. First, computer hardware and other tech stocks, being growth stocks, need to deliver much higher returns in a rising interest rate environment to justify the high risk associated with them. An increase in interest rates also reduces the value of the future cash flows of the companies, which, in turn, leads to a fall in stock prices. The reverse is true when interest rates fall.

• Diversified offerings: The leading companies in the industry are not purely hardware companies. They offer hardware, software, subscription services, etc., and have a diversified portfolio of tech solutions. This is true for industry leaders such as Apple and Microsoft as well as for smaller, newer companies. Moving away from being a pure hardware company not only helps the company add more revenue streams but also makes its brand stronger, as customers begin to view it as a one-stop-shop for all their tech needs.

• Regulations and patents: Due to the highly competitive nature of the computer hardware industry, companies often take a hit due to heavy fines on account of antitrust rules violations, patent infringement, etc. This tends to impact company financials, as penalties are often exorbitant in magnitude. Investor sentiment also gets impacted in such scenarios, which can lead to dips in stock prices in the short term.

• Technological transformation: Integrating digital technologies allows businesses of all types to improve their processes, reduce costs, and deliver more value to their customers. Computer hardware companies are benefiting from this rapid transition as demand for their products and services is increasingly at a similar pace with more and more companies increasing investment in digital technologies. Global spending on digital transformations is estimated to reach $2.4 trillion by 2024. In the long term, this can significantly increase the stock prices of companies that manage to successfully understand and cater to the changing needs of customers. 

WHAT DOES THE FUTURE HOLD?

Creating the supply chain of the future is going to be one of the key areas of focus in the computer hardware industry. Due to the pandemic, the industry faced a critical shortage of components in both 2020 and 2021. Some laptop and PC companies experienced lead times as high as 20 weeks. Companies need to consider what parts of their sourcing operations can be moved in-house or outsourced to nearshore providers, as well as what strategic partnerships need to be entered into.

The computer hardware industry is also central to kicking off smart city programs. A smart city uses digital solutions to improve quality of life indicators by providing improved quality of government service and public welfare. Smart cities require a range of hardware and software, and primarily rely on the Internet of Things (IoT). Using the right hardware will not only reduce costs but also impact the capabilities of smart cities.
All in all, the computer hardware industry is compelling for investors looking to earn high returns in the long term. As all the leading companies in this industry are American, make sure to add US computer hardware stocks to your portfolio. You can access the US stock market easily by downloading the Appreciate app today.