January 30, 2001, 12:00 AM — 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.
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.
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.