Further Proof of PC Slowdown Could Hurt Dell & HP (DELL, HPQ)

Samsung Electronics warned of an oversupply of computer memory chips Tuesday, which could have big implications in the PC market. Specifically, Dell DELL and Hewlett-Packard HPQ could continue to experience sales weakness amid an uncertain economic outlook. "If the PC market continues to slow, we may see a kind of oversupply in Q4 or Q1," Kwon Oh-hyun, head of Samsung's chip business, said at a media conference at its annual mobile solutions conference in Taipei. "Because of mobile phones and servers, the DRAM (dynamic random access memory) market will be stable, while PC is the weakest sector and it depends on demand from the U.S. Thanksgiving" in late November, which marks the beginning of the holiday shopping season. Further proof of inventory growth is not a positive indicator for Dell and HP. Both companies have sought to diversify outside of the PC business, but are still heavily reliant on computer sales. "We all know the PC market is not in a good shape now and if demand can't pick up, inventories will go higher," John Chiu, a fund manager at Taiwan's Fuh Hwa Securities Investment Trust told Reuters. "But we might pin some hopes on the upcoming long holiday in China in October and the Chinese new year holiday early next year, if demand picks up then, some inventories might can be absorbed." A Reuters report notes that "Prices of DRAMs, widely used in computers, have turned weaker since July after an unusually strong first half, as PC demand growth lost momentum and as the European debt crisis threatens to further weaken sales of computers and other consumer goods." Shareholders of Dell and HP aren't likely to welcome the news either. Both companies have seen stock value decline by more than 20% since April. Dell is down an additional 1.5% Tuesday, to $12.40, and HP is down 0.5%, to $40.13.