Positive fourth-quarter numbers from Intel and Advanced Micro Devices, plus Dell Computer's
announcement that its earnings would be better than expected, are
positive indications for PC manufacturers.
Intel also made a smooth transition
to its Pentium 4 processor, which helped its fourth-quarter results. However, one quarter does not make a year, and we expect 2002 will repeat the pattern of 2001 for the PC market, with flat sales and a continuing price drop (albeit much slower, at 10 percent to 15 percent) through the year.
The current corporate PC target price, with volume discounts, is $600 to $650 per unit, without monitor. By midyear, this price range should buy a PC with a 2GHz Pentium 4 processor, 256MB of SDRAM, and a 40GB hard drive. However, architectural and technological changes expected late this year and through 2003--such as USB 2.0,
3GIO and Serial ATA--will eventually enable vendors to simplify PC manufacturing and create more interesting designs, leading to another round of price reductions.
We expect the current upswing in memory pricing to be short-lived. By March, memory prices should begin to edge downward once again. As a result, in two years we expect the price of a standard corporate PC, without monitor, to reach the $500 to $550 range.
We expect corporate buying volume to remain stable through 2002, but we do not see any exciting new features pushing consumer PC sales until late in the year, when new entertainment-center PCs will appear that can be added to a home theater system just like any other component. However, through 2003, these will be purchased only by traditional early adopters.
We do see increased interest in flat-panel displays, which are much easier on the eyes, consume less power, and save desktop space. Although corporate buyers are now asking for quotes on flat panels, larger (that is, 17- and 18-inch) displays are still very expensive, and only about 5 percent to 10 percent of executives will get them this year. Corporate-brand, 18-inch flat-panel displays are
still priced at $700 to $800. The pricing on 15-inch displays (about $300 to $350) has actually seen a moderate price increase due to parts shortages, as demand has outstripped supply.
In the longer term, however, we expect that flat-panel manufacturing techniques will improve and that volumes will increase, leading to falling prices as manufacturers match demand. In 2003 and 2004, prices should decrease enough to enable flat-panel displays to compete with CRT monitors, making them very attractive to corporate buyers.
Look out for the shakeout
The PC market, now dominated by five name vendors, faces a
continuing vendor shakeout. Compaq Computer and Hewlett-Packard are still struggling with their proposed merger. Gateway is in trouble and is cutting back its market--it is doing the right things, but it was late
starting, leaving it with a shaky future. IBM, on the other hand, seems to be reviving its PC market presence, and Dell remains strong.
Corporate buyers are also becoming interested in laptops again, in part because of falling prices. While we do not expect a huge swing from desktops to laptops, we do expect a slow, steady rise in the percentage of corporate PC sales that go to those portable systems.
User organizations should work to establish good relationships with their PC vendors. However, they should avoid any long-term lock-in on PC or laptop prices, because we expect steady price decreases over the next two years. Consumers should also look at the total package they get with their contracts--including terms and
conditions and service--instead of focusing solely on price.
Organizations should maximize recycling of existing CRT monitors onto new desktops this year. In 18 to 24 months, they should
investigate switching to flat-panel displays, assuming that
pricing follows the expected downward curve.
Meta Group analysts Steve Kleynhans, David Cearley, Dale Kutnick,
Val Sribar and William Zachmann contributed to this article.
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