PC Sales May Pick up Later in the Year

PC Sales May Pick up Later in the Year


PC Sales May Pick up Later in the Year

By Hal Plotkin
Silicon Valley Correspondent

Analysts say saturated PC markets in the United States and slower-than-expected personal computer sales in Europe are creating ongoing headaches for leading chip maker Intel Corp. {INTC} and other players in the suddenly hard-pressed chip and PC sectors, though some improvement is expected later in the year.

In Europe, sales of PCs grew at an 8.9 percent rate during the second quarter, well off the industry’s more-traditional double-digit growth rate, according to Dataquest, based in San Jose, Calif. PC shipments into European businesses were particularly sluggish during the same period, growing by just 0.3 percent.

The growth of PC sales in the U.S. has also slowed considerably in recent months. U.S. PC sales grew at a comparatively sluggish 11.5 percent rate during the second quarter, about one-third the industry’s growth rate for the same quarter a-year earlier.

Preliminary PC sales data for the third quarter are expected to be released in early October.

While analysts acknowledge that European currency exchange rate issues have contributed to chip-maker and PC-vendor woes, they add that the problems are more reflective of underlying difficulties in core European and U.S. PC markets.

“Continued lockdown because of year 2000 issues, slow adoption of Windows 2000 and margin erosions in the large account business are the main reasons being given for slow growth in the [European] segment,” says Howard Seabrook, vice president and director of Dataquest’s Computer Systems and Peripherals program.

Looking ahead, though, Seabrook reports signs of a potential rebound, at least in terms of PC sales in Europe.

“The key for stimulating growth in the professional market will be the reduction of [product] lifecycles,” Seabrook says. “There is a growing number of old PCs out there, which will require replacing over the next 18 months. The first wave of this should start to appear by the fourth quarter this year, and we should see a pickup in replacements over 2001.”

Analysts say that the situation in the U.S. is more problematic for PC makers and the chip makers that supply them.

The most-recent quarterly shipment figures available demonstrate the steadily slackening demand for new PCs in the U.S.

Company 2Q00 Shipments 2Q00 Market Share (%) 2Q99 Shipments 2Q99 Market Share (%) Growth (%)
Compaq 3,980.0 12.6 3,762.9 14.0 5.8
Dell 3,346.5 10.6 2,684.8 10.0 24.6
Hewlett-Packard 2,253.0 7.1 1,678.8 8.7 34.2
IBM 2,249.0 7.1 2,344.0 6.3 -4.1
NEC 1,394.0 4.4 1,278.6 4.8 9.0
Gateway 1,170.3 3.7 1,023.9 3.8 14.3
Others 17,230.0 54.5 14,025.9 52.3 22.8
Total Market 31,622.8 100.0 26,798.9 100.0 18.0
Note: Table includes desk-based PCs, mobile PCs, and PC servers.
Source: Dataquest (July 2000)

Saturation in key segments of the U.S. market presents a major challenge for the PC industry going forward, says Charles Smulders, principal analyst for Dataquest’s Personal Computers Worldwide Program.

Smulders says vendors must find ways to persuade end-users in the U.S. to replace their PCs more frequently.

The main problem, though, is that unlike previous periods, most PC users don’t have to upgrade their hardware to take advantage of the most-powerful currently available software.

PC makers aim to find a way out of this bind by placing more emphasis on what their boxes look like, rather than what is inside them. They hope that new form factors, shapes and colors will appeal to consumers, particularly those contemplating the purchase of a second PC.

“New form factors are one thing that will drive increased sales, particularly in multiple PC households,” says Steve Baker, vice president of PC Data, based in Reston, Va. “But it’s going to have to be more than just a purple computer in a shoebox.”

Baker says PC makers are instead going to have to do a better job of segmenting their markets and designing products that appeal to particular groups of consumers.

“They’ve been making one-size-fits all computers,” Baker says. “But like every other industry, they’re going to have to become more sophisticated in how they segment their market to build sales and revenues.”

“Expect there to be several iterations before the vendors get that right,” Smulders agrees.

PC industry analysts also say that it is unreasonable to expect U.S. PC sales to continue to post the same growth rates they did over the past two years when offers of free Internet service stampeded hordes of consumers to purchase new machines for as little as $400 each.

It is sort of like the guy who blows himself up at the circus. It is a very nice act, but a hard one to repeat.

“That was really a one-time thing that appealed to people wanting to get on to the Internet for the first time,” Baker says. “There is no way we’re going to see the demand for that be as strong as it was when those programs were first introduced.”

Even so, Baker says investors who reacted to Intel’s warning with alarm and near across-the-board selling, should get a grip on themselves.

“Look, you’ve got an industry that is growing at better than a 10 percent [annual] rate,” he says. “Most businesses would kill for that. Prices have now flattened out and are coming up again, and companies such as Compaq {CPQ} and Hewlett-Packard {HWP} are getting consumers to focus more on value and not price.”

Baker adds that he is a little puzzled by the spate of across-the-board selling Friday of tech stocks stemming from the Intel warning. He says that most knowledgeable observers have been talking for a long time now about how PCs are becoming less relevant to the future direction of technology markets.

“I’d be more concerned if the announcement came from a Cisco {CSCO}, or some other leading company in the networking area, or on the Internet side, or in telecommunications,” Baker says. “But the fact that PC demand is slowing down has been pretty apparent to anyone with their eyes open for the last year.”

About the Author /


My published work since 1985 has focused mostly on public policy, technology, science, education and business. I’ve written more than 600 articles for a variety of magazines, journals and newspapers on these often interrelated subjects. The topics I have covered include analysis of progressive approaches to higher education, entrepreneurial trends, e-learning strategies, business management, open source software, alternative energy research and development, voting technologies, streaming media platforms, online electioneering, biotech research, patent and tax law reform, federal nanotechnology policies and tech stocks.