PC Group: Don’t Hold Your Breath
PC Group: Don’t Hold Your Breath
By Hal Plotkin
CNBC.com Silicon Valley Correspondent
Dec 6, 2000 05:41 PM
If you have listened to the experts lately, you might have the idea that the recent slide in PC-related stocks is just another short-term setback.
Don’t believe it. And don’t believe me either. Instead, trust yourself.
When it comes to what is ailing the PC business, you are as much of an expert as anybody else. How so? Think back to the last time you bought a new PC. If you are like me, you made that last purchase, despite the fact that you already owned a perfectly fine machine that did everything it was supposed to. But, because it couldn’t handle some new software or handle all that stuff on the Web, it suddenly seemed obsolete.
Getting consumers to throw out working computers every two or three years has been the key driver behind the industry’s phenomenal growth rate over the past two decades. Rapidly recurring cycles of obsolescence led to the high double-, and in some cases, triple-digit annual sales-growth rates. That kept shares of PC makers and key suppliers, such as Intel Corp. {INTC} and Microsoft Corp. {MSFT}, on a steady upward trajectory.
As recently as 1998, for example, desktop PC sales in the United States were growing at a nearly 60% annual clip. By the third quarter of this year, the growth rate had skidded to just 12.2%, according to Gartner Group’s Dataquest. And the growth of sales to consumers through retailers has slowed to 6% in the first 10 months of this year.
What’s going on here?
Put simply, people aren’t buying new computers because they don’t have to. There is still a healthy number of first-time buyers who may be getting ready to put a PC under the tree this holiday season. But there aren’t enough newbies in North America to recreate the conditions that led to the industry’s adolescent growth spurt.
Take a walk through the personal computer graveyard and you get a better idea of what I am talking about.
I fondly remember my first personal computer, an IBM 8088, purchased sometime in the early 1980s. It didn’t even have a hard drive. You had to boot up the $2,800 machine by loading the DOS operating system from a floppy disk. After that, you manually loaded whatever application software you were using from another floppy disk. Working on actual documents or data required yet another floppy.
Naturally, a couple of years later, it was a no-brainer for me to upgrade to a machine with an internal hard drive. Similar technical advances led me to toss out my 286, 386, 486 and even my first Pentium computer
— the latter because it didn’t have the MMX instruction set that helps a microprocessor handle multimedia files.
Like most consumers, I tossed (or gave away, when there were takers) still-running computers because there was no alternative — at least, not if you wanted to stay on the same page with everyone else. Each of the computers I previously owned was, for the most part, useless when it came to handling indispensable new software as it came to market, whether it was Windows 3.1, or Windows 95 or even Windows 98.
The carnage was so great we even had people in Silicon Valley making a business out of harvesting the tiny amounts of gold soldered onto the internal connectors found in the personal computers that were piling up in our municipal dumps.
The scavengers are going to find increasingly slim pickings.
This isn’t an argument that history is about to come to an end. But it is taking a pause as consumers use their perfectly up-to-date computers to surf the Net for bargains on other techno-goodies, such as personal digital assistants or DVD players. That is bad news for anyone expecting stocks such as Advanced Micro Devices Inc. {AMD} Compaq Computer Corp. {CPQ}, Dell Computer Corp. {DELL}, Gateway Inc. {GTW} and Intel to regain their positions in the growth stock vanguard.
How do I know this? The dismal numbers from the computer stores — as telegraphed in Apple Computer Inc.’s {AAPL} devastating earnings warning Tuesday — tell me so. And so does what I see before me. My 850 MHz Pentium III computer, now about a year old, is showing no signs of age. It opens files faster than I can look at them, runs multiple applications simultaneously with ease, and can even play live streaming video and audio coming across the Web while doing something else.
And I see no new software on the horizon that looks like it is going to pose much of a challenge to my computer’s now-formidable digital machinations. Although my anti-virus software couldn’t keep up, my PC handled a recent upgrade to Windows ME without so much as a hiccup. In the past, putting a new operating system on a computer made it run slower, if it ran at all. This time, my old PC boots up even faster.
Some analysts are hoping the PC industry will find its salvation in Microsoft’s Windows 2000, which is aimed at corporate users. But corporate users have been slow to embrace the new software, which, unlike many previous operating system upgrades, doesn’t require any new hardware.
It is possible that businesses will decide en masse that they need to buy new PCs next year, as some of those pushing PC stocks now promise. But my guess is that most businesses are more like you and me. And they are becoming more so as their budgets contract along with economic growth. They aren’t going to buy stuff they don’t need when what they have works just fine. Businesses cut down on the frills when they are worried about keeping the lights on.
So when will we see the next big mandatory PC upgrade cycle?
Probably not until after the promised but delayed broadband revolution finally hits. Eventually, at least some of us might want to watch full-screen live video on our computers rather than look at those
herky-jerky little streaming video windows. An HDTV signal, for example, requires a transmission speed of about 20 megabits per second, which is about 15 times faster than the digital subscriber lines that are only now beginning to penetrate the market. Those speeds will blow our current computers right into the dustbin. But they could be a long time in coming.
Then again, many consumers may also decide they want to watch HDTV on their TVs, not on their computers.
Predicting the future is always a risky business. Unforeseen new software applications often emerge when they are least expected.
But the good news is you won’t have to wait for the experts to tell you when it is happening. Just pay attention the next time you are struck with the feeling that you must rush out to buy a new computer capable of running the software everyone else is talking about.
Until then, the PC sector’s future will look very different from its past.
