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Commentary: PC sales doldrums

The U.S. economic slowdown is having a growing impact on other regions in the world, and the PC industry continues to be affected.

    By Todd Kort, Martin Reynolds, Mikako Kitagawa, Gartner Analysts

    The U.S. economic slowdown is having a growing impact on other regions in the world, and the PC industry continues to be affected.

    See news story:
    Studies: PC sales down, but could be worse
    Gartner estimates that worldwide PC shipments in the second quarter totaled 30.4 million units, a decline of 1.9 percent from the same period last year. In the United States, sales declined 6.1 percent, to 10.7 million units--well below Gartner's expectations.

    These preliminary figures, based on Gartner research, show not only an end to 15 years of unbroken year-over-year sales growth, but that without a major shift in the PC industry's structure, sustainable high-growth rates in the future are unlikely. Still, PC makers are hoping the October 25 release of Windows XP, the latest of Microsoft's much-hyped operating systems, will help to improve fourth-quarter sales.

    Gartner believes the industry must create more compelling buying reasons for PC customers, extending beyond the typical price and performance measurements that have dominated industry thinking. Companies continue to opt for price-cutting rather than changing PC design to stimulate growth, and that strategy is costing it sales.

    For example, an opportunity exists for companies to sell inexpensive second or third PCs or Web terminals to households that already have a PC, as well as promote how easily they can be networked to share peripherals and an Internet service provider. No company appears to be working seriously on developing that idea.

    Dell Computer is the only top-tier computer maker to have growth rates worldwide and in the United States. Dell increased shipments throughout the world, particularly in Japan, Asia-Pacific and Latin America, with 30 percent to 50 percent growth.

    Dell had U.S. sales of 2.53 million units, Compaq Computer achieved 1.38 million, Hewlett-Packard 990,600, Gateway 798,200 and IBM 638,200. Dell recognizes that in periods of falling component prices that its business model works best, and it is working hard to press the advantage while the glut of components persists.

    Despite being overdue for an upgrade cycle in both the home and professional segments, Europe continues to underperform relative to expectations. Early estimates show the Western European PC market likely exhibited a low single-digit percentage decline and the Asia-Pacific region experienced a 9 percent growth rate in the second quarter. Latin America is feeling the impact of economic events in the United States, and it is expected to slow to 11 percent growth year-over-year. In Japan, a low 5 percent growth is expected because of a weak consumer PC market.

    The U.S. PC market has experienced its second consecutive quarter of decline, retreating 6.1 percent in the second quarter. Price pressures intensified as some competitors followed Dell with substantial price reductions. Gateway said it would beat the lowest price from competitors on comparable PC configurations, while Hewlett-Packard and Compaq lowered prices for their business desktop models.

    Gartner believes that while inventory efficiency remains extremely important in managing gross profit margins, PC company margins continue to erode, forcing them to put more focus on reducing operating expenses to meet profitability goals. As a result, all major companies have laid off workers or consolidated parts of their operations, or both. It is an interesting dynamic for the industry and for customers to watch going forward, because this has the potential to impact customer satisfaction negatively in terms of product quality and customer experience.

    (For related commentary on what Gartner envisions as scenarios ahead for the PC industry, see gartner.com.)

    Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.