Channel retailers in Europe are showing signs that they are suffering from slow inventory digestion and cash flow problems, according to sources from the upstream supply chain.

The retailers have recently started aggressive promotions for notebooks such as buy-two-get-one-free offers, and have been asking brand vendors to extend the collection periods for accounts receivable, the sources said.

As the year-end holidays approach, the sources are concerned that the retailers may reduce their notebook prices further in order to quickly clear up their inventory, but such a move is expected to greatly impact notebook brand vendors' profitability and affect overall notebook sales in the second half.

The sources pointed out that brand vendors such as Lenovo and Hewlett-Packard (HP) have been encouraging their retail partners to stock up since May by offering them high commissions. However, weak demand and Windows 10's failure to kickstart a PC replacement trend have caused the retailers to suffer from high inventory pileup despite their aggressive promotions.

Acer and Asustek Computer, neither of whom has used the high-commission strategy, are still expected to be affected as the retailers are selling competitors' notebooks at a much lower price range, forcing the two firms to follow suit or risk losing market shares. Currently, Acer and Asustek take up about 30-40% of Europe's notebook sales.

Asia Pacific is also seeing weakening notebook demand amid a slowing China economy. The PC market in the US is the only one seeing meaningful growth, but only US-based vendors HP, Dell and Apple will benefit.

Acer has now turned its focus on the enterprise and gaming sectors, looking to offset the impact from the consumer sector. Meanwhile, Asustek is pushing gaming-related products for better gross margins.