Cloud-driven demand for high-end servers and storage will continue, but so will demand and pricing pressure on PCs.

The slowing economic recovery, intense competition and the impact of tablet computers on PC sales — especially netbooks — created a difficult first quarter for the computers, peripherals and electronics sector. The result: declining median market value and a downward-arcing operating income curve in the accompanying chart.

Highest median sales value, but lowest income growth

Aggregate market value increased 10% YOY for the 36 sector companies, even though 25 companies (69%) declined in market value and the median fell 5%. The aggregate increase was due to one company, without which the remaining companies would have seen a 10% aggregate decline in market value.

The sector saw the highest median sales value of any sector for the trailing 12 months ending in 1Q 2011, but the second-lowest median operating income growth posted by any sector. The sector's R&D spending increase was low compared with other sectors — just 10% on a trailing 12-months basis — and R&D as a percent of sales was lowest of any sector.

This is most likely because so many sector companies are diversified and include divisions, such as services, for which little or no R&D is spent.

Key performance indicators for computers, peripherals and electronics (median value), 1Q11

Outlook for computers, peripherals and electronics

The outlook for this sector remains mixed for the near term. Cloud-driven demand for high-end servers and storage will continue, but so will demand and pricing pressure on PCs.

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