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PC market muddled through first quarter

PC shipments slumped during the first quarter because of a slowdown in corporate spending, but analysts are optimistic about the future.

PC shipments slumped during the first quarter because of a slowdown in corporate spending, but a worldwide economic recovery, continued consumer demand and other factors indicate that the industry should continue to chug along.

The data for the first three months of the year in many ways provides a mixed picture of the health of the market. PC growth continues, but some analysts see signs of market saturation. Price declines also are eroding some gains from increased shipments.

On the other hand, the first quarter historically has created temporary and unfounded gloom. As a result, the numbers are likely to provide additional fodder for the high-tech industry's favorite debate: Are things slowing down, or are they picking up?

PC shipments grew by 17 percent in the first quarter in the United States, less than was predicted, and by 20 percent worldwide, according to International Data Corp. In total, manufacturers shipped 30.4 million machines worldwide during the first three months of the year.

Dataquest, meanwhile, reported that PC shipments grew 14.5 percent in the United States and 15 percent worldwide. The numbers differ between the two research firms because Dataquest does not include server sales.

Both studies show that Dell Computer and Compaq Computer remained locked in a battle for the No. 1 position, while Hewlett-Packard and Emachines showed the most impressive growth results in the United States.

By contrast, IBM saw shipments drop by roughly 15 percent worldwide because of the Y2K slowdown and a radical upheaval in the consumer market. Emachines knocked IBM out of the top five in both studies.

Although the numbers clearly show that the world hasn't tired of the personal computer, there are numerous caveats and exceptions.

PC shipments in the United States, for instance, came in below the 20 percent growth rate that IDC had predicted U.S. PC sales for the first quarter, according to Gabrielle Griffith, an analyst at the firm. The shortfall was blamed on large corporations, which curtailed spending following their Y2K spending binges.

"Commercial was much weaker than we expected, and consumer was a little stronger," Griffith said. "January and February were much weaker than March (for commercial PC sales). It seemed to be larger corporate accounts rather than the small-business markets."

The results match comments from Gateway, IBM and Microsoft during the past two weeks. All three companies said that sales to business customers dropped sharply before picking up again in March. IBM saw U.S. shipments shrink 41 percent, Griffith said.

"For the U.S., the numbers are pretty much in line with our predictions," said Charles Smulders, an analyst at Dataquest. "We anticipated that Q1 would be slow."

Nonetheless, hope springs eternal. The upgrade cycle for Windows 2000 has barely started and is expected to drive demand in the second half, according to both research firms.

Purchases made by consumers and overseas business also are growing relatively rapidly. Shipments to Asia grew by 36 percent and to Japan by 35 percent, according to IDC, while the relatively tiny markets in Latin America saw strong growth.

Smulders noted that sales in Korea, Japan and the Middle East were especially strong. Europe, though, which represents a far larger market, experienced lower-than-expected shipments.

The European numbers and the U.S. experience present a problem, analysts said. These two markets still consume the lion's share of computers. Last year, global shipments grew by 22.2 percent in the first quarter, an exceptional quarter, but one that also makes this most recent quarter look slightly anemic.

"Because there are so few new seats in the developing economies, how do you drive unit growth?" Smulders asked rhetorically. For the most part, computer makers are going to have to World PC sales convince businesses and consumers to replace their computers more frequently; they can do this by improving performance, enhancing the style or lowering the price, he theorized.

"From a worldwide perspective, there are some concerns," he said. "If they can meet that challenge, we will not continue to see growth in demand."

As far as individual manufacturers went, Dell and Compaq continued to be the dominant PC companies. Compaq held the No. 1 spot worldwide, while the two companies were neck-and-neck in the United States. Compaq even saw its market share increase, a sign that the turbulence the company experienced in 1999 is coming to a close.

Among large manufacturers, HP overtook Dell as the fastest-growing big PC maker. HP, which has made a huge effort to expand into the consumer market in recent quarters, saw shipments grow by 67 percent domestically and by 56 percent worldwide, according to IDC.

And although HP and Dell are close, HP is ahead of Gateway in the United States and in international shipments in both studies.

"HP had a phenomenal quarter," Griffith said. "It seems like they have hit the sweet spot in the market."

Apple Computer stayed in sixth place in the United States. The company saw shipments grow by 28 percent, the fourth-best growth rate, shipping to 486,000 computers. Its market share expanded from 3.9 percent to 4.4 percent, according to Dataquest. Apple passed IBM in the U.S. market but in turn got passed by Emachines.

Emachines' shipments grew by 79.5 percent in the United States, according to Dataquest. The small company leaped into the top five manufacturers in the U.S. market.

By contrast, IBM contracted. The company saw shipments drop by 14 percent worldwide, according to Dataquest, and by 15.7 percent, according to IDC. Domestically, IBM shipments shrank by 41.9 percent, IDC noted.

"They got hit with the worst of the Y2K because of a predominance of large corporate accounts," Griffith said. IBM also pulled out of retail but failed to invigorate its direct strategy.