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Another gloomy sales report for PC retailers

Despite an expected surge from back-to-school buyers, computer retailers see sales slip and prices continue to fall in August, according to a new survey.

Despite an expected surge from back-to-school buyers, retail PC sales slid as the percentage of cheap computers climbed in August, confirming a trend that is causing consternation at stores.

PC sales at retailers dove 8.2 percent last month from July while the percentage of sub-$1,000 sales climbed to about 77 percent of total sales, according to Allison Boswell Consulting, a San Francisco-based market researcher. The survey includes only sales at brick-and-mortar stores and does not include direct, catalog, or Web-based sales.

"This should be a good time-period...going back to school--but it's not boosting sales," said Allison Boswell, who heads the research firm.

Retail stores have been stung by plummeting profits as consumers increasingly choose low-cost or even "free" computers. Large manufacturers such as Dell Computer are pushing sub-$1,000 boxes as well as easy-to-buy leased computers.

Last month, CompUSA, the largest computer retail chain, delayed its earnings report and then reported a net loss in the fourth quarter of $64 million. The company also said it is cutting 1,800 jobs from its sales force as it continues to close stores.

OfficeMax, another nationwide retailer, has also stated that its computer sales have become a drain on the bottom line. Good Guys, a large California-based chain of electronics stores, said recently that it is eliminating PC sales.

Maybe just in time, too. Amid the drop in unit sales, the percentage of sales of sub-$1,000 PCs is rising, Boswell said. Sub-$1,000 PCs now represent 76.9 percent of all PC retail sales, up from 64 percent in July, she said.

"Considering that everyone is making their own [branded] systems now, prices are getting cheaper and cheaper," said a source at one large retailer, which markets its own brand.

"The trend has been consistent since the beginning of the year with unit sales and average price declining in a consistent pattern. It is apparent that no matter how low prices go, unit sales continue to decline in the retail channel," Boswell said.

Stephen Baker, an analyst with market researcher PC Data, agreed with some of the findings, particularly the rising popularity of sub-$1,000 PCs. But he said Boswell's estimate for sub-$600 PCs--17 percent of retail sales--is too low and is likely closer to 35 percent.

"On the Net, people are more likely to buy more expensive products," he said. Many people will opt to buy ultracheap PCs at stores, he said.

Online resellers seem to confirm this trend. Insight, one of the top online resellers of PCs and peripheral devices, said in the most recent quarter that revenue was up 54 percent and earnings 68 percent. These sales are being generated by a focus on small and medium-size businesses, according to Brian Burch, senior vice president of marketing at Insight. So far, retailers have had trouble capturing that market.

Small and medium-size businesses tend to buy more upscale computers as well as a host of peripherals and services as they add connections to the Internet.

"Sales are fast and furious [at small businesses] because of the Internet," Burch said. Insight sells Gateway and Compaq custom-configured PCs in addition to many other brands.

Among other statistics in the report, Boswell said the average selling price of a PC was off 2.1 percent at retailers during August.

Emachines gaining ground In market-share ranking, Compaq remained the top brand during the month and Hewlett-Packard held on to the No. 2 spot. But Compaq is getting plenty of pressure. "Stores are clamoring for more HP PCs," she said.

Emachines bumped IBM out the No. 3 position, while Apple Computer remained No. 5.

Apple's sales have been hit or miss with retailers, Boswell added. For example, though sales at CompUSA are steady, sales at Sears have been dismal, she said.

"You would expect Apple to do well because less-sophisticated buyers shop there, but no."

Market-share figures for Intel in the low-cost market are solid, a segment it had once all but lost to Advanced Micro Devices. In the sub-$1,000 market, despite the fact that AMD offers eight speeds of chips below $1,000 and Intel offers only five, Intel remains dominant with 44.4 percent of unit sales, according to Boswell. "Although AMD improved their marketshare to 42.5 percent, it was not enough to surpass Intel. Cyrix picked up the slack with 13.1 percent marketshare at this price."

"Sub-$600...is still the only price point that Intel does not dominate," according to the report.

Boswell said the most popular speed is 400 MHz, accounting for 26.2 percent of total unit sales. Intel's Celeron chip has done well at this speed. The highest unit and volume increases were for 500-MHz machines. Unit sales nearly doubled, up 81.8 percent, and volume increased 49.1 percent. Additionally, this speed had the biggest decline in price, down 18 percent. The Celeron and the Pentium III are available at this speed, which represents 7.6 percent of total unit sales.

Though printer sales were off from the previous month, "the hottest selling products in August [were] printers. Our survey concludes that 24.6 percent of PC retailers named this category as the hottest selling items in their stores."