Pulse-code modulation represents sampled audio as digital values. In a playback setup, a PCM output can mean the source device has already decoded compressed audio before sending it onward. Supported channel counts and sample arrangements depend on the equipment and connection, so PCM does not automatically mean either poor quality or multichannel surround sound.
A practical example
A streaming box may decode a supported audio track and send PCM to a television. This can simplify compatibility in one setup, while the number of channels actually delivered still depends on the chosen mode and what the connection can carry.
A common misunderstanding
Do not treat PCM and stereo as interchangeable words. PCM can represent different channel arrangements, although a particular device or connection may limit the PCM output it supports.
Related terms
Stable technical definition. Editorial approach