IT Forecaster January 30, 2001 - No. 887 PC's Future a Mixed Bag

Remember when upgrading to Windows 95 meant buying more memory and

disk and still your PC crawled? In the past five years, PCs have

become so fast and capacious that users aren't impelled to replace

or upgrade their systems despite continuing software bloat.

Increased satisfaction and saturation are among the factors that

have caused growth of PC shipments to slow, despite the attraction

of better values. In the United States at least, the value of PCs

sold annually (which include keyboard, mouse, internal drives, and

monitors) seems to have already peaked, as Figure 1 shows.

Figure 1

U.S. Total Value of PCs and Appliance Shipments, 1999-2004

Looking at this picture, it's only values (system prices, but not

necessarily margins) for the desktop form factor that are on the

decline, but that segment is large enough to drag the aggregate

(top line) down with it.

Information appliances (a category that includes Web and email

terminals, Web TVs, gaming consoles, and Internet-enabled small

handheld devices) have been touted as PC-killers, but very few are

being acquired at the expense of either desktop or portable

computers. They're still a minor but well-monitored blip on PC

makers' radar screens.

Mixed Messages

Wall Street and the media have been harsh on PC vendors lately,

focusing on disappointing quarterly results from Gateway, Micron,

Apple, and even Compaq. Apple responded by offering consumers

unusually deep discounts, and now says its current quarter will

show a profit. Compaq's largest-ever inventories may not clear for

several quarters. Still, some vendors, such as IBM, Dell, and

Hewlett-Packard, managed to buck the trend.

In an CNBC interview last week, Dell Computer CEO Michael Dell

expressed confidence in the company's direct marketing approach,

saying it had led to Dell surviving a bad quarter in the U.S. and

European PC markets. He dismissed the idea of the PC going away as

"complete nonsense," yet noted that the firm's core desktop

business accounted for only a third of its revenues and that its

emphasis is now on "servers and storage, services, and mobile


It's hard for vendors to know how and where to hedge their bets. In

the United States and Europe, direct PC sales seem to slightly

outpace the retail channel, but in other regions, retail still

rules. Also, portable PCs sold relatively strongly recently, their

higher prices and margins buoying revenues. Prevailing in the

market -- or at least avoiding fire sales -- seems to require a

combination of prescient planning, savvy sourcing, and daring to


Where the Action Is

Although U.S. sales are still the bellwether of the IT industry,

commerce in other regions is growing more important. The PC buying

outlook varies considerably across the globe, as Figure 2


Figure 2

CAGRs for PC Unit Shipments, Selected Regions, 1999-2004

Compound annual growth rates (CAGRs) forecast through 2004 will be

greatest in the Asia/Pacific and Latin American regions, lowest in

the United States and Japan, and mixed in Western Europe. Growth of

demand for portables will exceed that for desktop PCs by four to 10

percentage points.

To stay competitive, first- and second-tier vendors need to tap

emerging markets. This, in turn, requires localizing their Web

marketing efforts and retail arrangements. Cultural preferences may

require personal sales and support contact. PC vendors used to

direct merchandising will have to cultivate channels if they hope

to grow global market share.

-- Geoffrey Dutton

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