PCs & Laptops

# Executive Summary * The PCs & Laptops industry is undergoing a significant transformation, primarily driven by the rapid adoption of AI-enabled PCs, which are projected to constitute 31% of the market by the end of 2025 and command substantial price premiums. * A critical, non-discretionary refresh cycle is imminent, fueled by the October 2025 end-of-life for Windows 10, which is expected to trigger double-digit growth in PC shipments, particularly within the commercial segment. * Geopolitical tensions, including the threat of steep tariffs on Chinese imports, pose a significant headwind, with potential laptop price increases of up to 46% threatening to compress industry margins. * The competitive landscape is characterized by a divergence between vertically integrated ecosystem players, such as Apple, who achieve high margins, and broad enterprise solution providers like Dell, who are capitalizing on the burgeoning AI infrastructure market. * Massive capital investments in AI infrastructure and capabilities are a defining feature, with industry leaders like Microsoft and Apple committing tens and hundreds of billions of dollars, respectively, to secure future growth. * Profitability varies significantly across the industry, with technology leaders leveraging proprietary silicon and integrated software to achieve gross margins exceeding 40%, while volume-focused players operate with single-digit margins. ## Key Trends & Outlook The primary catalyst reshaping the PC industry in 2025 is the rapid integration of artificial intelligence, creating the first major new product category in over a decade: the AI PC. These devices, featuring dedicated Neural Processing Units (NPUs), are projected to capture 31% of the global PC market by the end of 2025, reaching 77.8 million units. This shift is driving a significant uplift in average selling prices (ASPs), with manufacturers like HP anticipating a 10% to 20% premium for AI-capable models, directly boosting revenue and gross margins. This trend benefits component suppliers like Qualcomm, whose Snapdragon chips are designed for on-device AI, and ecosystem owners like Microsoft, whose Copilot software drives the use case. The magnitude of this transition is underscored by massive capital commitments, including Microsoft's planned $80 billion investment in AI-enabled data centers in FY2025. Layered on top of the AI-driven upgrade is a massive, non-discretionary hardware replacement cycle spurred by Microsoft's termination of free Windows 10 support on October 14, 2025. With over 60% of PCs still running the legacy OS, an estimated 60% of organizations are planning to purchase new hardware, which is expected to fuel double-digit growth in PC shipments through 2026. This forced refresh provides a powerful, near-term demand floor for manufacturers like Dell, which anticipates a PC refresh cycle as a tailwind for growth in FY26, and HP, which saw its Q3 FY26 revenue beat driven by the ongoing Windows 11 upgrade cycle. The convergence of the AI and Windows refresh cycles creates a powerful "super-cycle" for PC demand, particularly in the higher-margin commercial segment. However, this positive outlook is tempered by significant geopolitical risk, as potential tariffs of up to 100% on Chinese-made goods could raise laptop prices by 46%, potentially stifling demand and severely compressing margins for all hardware manufacturers. ## Competitive Landscape The PC market operates as an oligopoly, with Lenovo, HP, and Dell together controlling nearly 60% of global PC shipments. This concentration shapes the competitive dynamics, leading to distinct strategic approaches among key players. Some players, most notably Apple, compete by controlling the entire technology stack—from proprietary silicon (M-series chips) to the operating system (macOS) to software and services (Apple Intelligence, App Store)—to deliver a seamless, high-margin user experience. This vertically integrated premium ecosystem strategy affords Apple massive pricing power, evidenced by its 47.1% gross margin in Q2 FY25, and fosters extreme customer loyalty. The company's M4-powered Mac Studio, an "AI powerhouse," further demonstrates its commitment to leveraging proprietary silicon for AI workloads. Other major firms, such as Dell, focus on providing comprehensive, end-to-end solutions for enterprise customers, spanning client devices (PCs, laptops) and complex back-end infrastructure (servers, storage). This broad enterprise and infrastructure solutions provider model allows Dell to capture a larger share of total IT spend and leverage strength in areas like AI servers to pull through sales in commercial PCs. Dell's 16% growth in Servers & Networking revenue in Q1 FY26 demonstrates the success of this integrated strategy. Underpinning the majority of the market is Microsoft, which drives the industry by controlling the dominant operating system and productivity software platform. As a horizontal ecosystem and platform driver, Microsoft leverages its Windows OS dominance and the push for Copilot integration across all OEM hardware to set industry standards and capture value through licensing and cloud services. Its massive investments in Azure, with over 400 data centers and more than 2 gigawatts of new capacity in FY25, power the AI backend for the entire ecosystem. The competitive landscape is further defined by an intensifying architectural shift from x86 to Arm-based processors. Qualcomm's Snapdragon X series platforms are gaining design win momentum, capturing approximately 9% share of Windows laptops above the $600 price tier in key regions in Q1 2025, signaling a growing challenge to the traditional x86 dominance. ## Financial Performance Revenue growth is bifurcating, with a clear divergence between companies capitalizing on the high-growth AI infrastructure market and those more exposed to the traditional PC cycle. Dell's revenue growth of +19% year-over-year in Q2 FY26 exemplifies the AI tailwind, driven by a significant surge in its Infrastructure Solutions Group. In contrast, PC Connection's -2.2% year-over-year revenue decline in Q3 2025 highlights the softness in certain segments awaiting the broader refresh, particularly its Public Sector sales which declined by 24.3%. {{chart_0}} Profitability shows extreme divergence based on business model and proprietary technology. Apple's 47.1% gross margin in Q2 FY25 is a clear outlier, proving the value of its closed ecosystem and proprietary silicon, which enables significant pricing power. This contrasts sharply with a distributor like TD SYNNEX, whose 7.22% gross margin in Q3 FY25 reflects the low-margin, high-volume nature of its business model. {{chart_1}} The dominant theme in capital allocation is a two-pronged approach: returning massive amounts of capital to shareholders while simultaneously making historic investments in AI capabilities. Apple perfectly illustrates this dual strategy, authorizing an additional $100 billion in share repurchases in Q2 FY25 while also committing $600 billion over four years to AI infrastructure. The financial health of the industry leaders is exceptionally strong, characterized by massive cash reserves and powerful cash flow generation. Apple's $132.922 billion in cash and marketable securities as of Q2 FY25, coupled with $24 billion in quarterly operating cash flow, is a testament to the industry's financial strength at the top end.