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Gains in PC sales defy fears--for now

PC sales skyrocketed last month, a new study says, driven by the popularity of low-cost computers, a slew of novel rebate deals, and more lower-income households joining the party.

Reports of the death of the personal computer have been premature, according to a new report, as PC sales made significant gains last month amid steadily dropping prices.

According to the report, PC sales skyrocketed last month, driven by the popularity of low-cost computers, a slew of novel rebate deals, and more lower-income households joining the party.

Although sales are historically strong at the end of the summer because of the beginning of the school year, this year was remarkable: August retail PC sales jumped by 42 percent compared to the same month last year, according to retail market research by Infobeads.

The spike in sales is much-needed good news for the PC industry--which many observers said faced imminent threats from handheld computers, game consoles, and other devices--but it could prove to be short-lived. The sales are based on significantly lower prices on PCs, which means profit margins are under siege at computer hardware makers and stores.

This trend is having a huge effect on the industry, causing consternation at stores and forcing hardware makers to explore new markets.

But from a consumer point of view, the market is hot, the report found. "It looks like 1999 will be another banner year for the home PC market," wrote Dave Trembly, an Infobeads analyst.

Sales have also driven up the number of homes that now have PCs. By the end of 1995, 38.5 percent of U.S. homes had computers. Now 52.7 percent of homes have one or more PCs, according to an Infobeads estimate.

"There are about 2.9 million more PC households in the middle of the year than there were at the beginning," Tremblay added. "That's more than were added in all of 1996."

The news in many ways validates the "PC-ISP" concept: that is, offering Internet access with the purchase of a PC, or the other way around. In the past, consumers bought PCs and then independently sought service from an Internet service provider--a potentially frustrating task.

But starting last year, and increasing dramatically this year, PC companies are teaming up with ISPs to sell their products together in one neat package, often with huge discounts.

Making the customers happy
The combinations and complementary discounts in many instances lead to lower profit margins for PC makers, analysts have said, but the deals have clearly struck a chord with the buying public.

Computers priced under $600 made up 47 percent of all desktop computers sold by retailers in August, and for the first time, the majority of PCs were under $800, according to the report. Only three years ago, the average selling price of a PC was $1,800.

The price trends affected the standings of PC makers, as well, according to the report. For the first time, Hewlett-Packard leapfrogged past the beleaguered Compaq Computer, which has held a tight grip on the retail market over the last few years. HP, which has embraced an aggressive pricing strategy over the past few years, took 35 percent of the retail market, with its unit sales increasing a staggering 86 percent compared to last year. The Infobeads study did not track direct PC sellers like Dell and Gateway.

Compaq and Emachines rounded out the top three spots with 29 percent and 14 percent of the market, respectively, the study found. Eighteen months ago, Emachines was not even a top-five retail brand.

Rising popularity also seems to discount the theory that so-called information appliances are eroding the popularity of the garden variety computer.

"There is no computing-appliance-induced slowdown in PC penetration visible yet," the report stated. "We may not be able to say the same in a few years, but for now, the PC reigns and continues to pick-up new households.

These numbers also indicate that PC consumers are no longer just the affluent and elite, Infobeads added. Middle- and lower-middle-class households embracing cheap computers is especially good news for PC makers, because the high-end market was nearing the saturation point, meaning that sales to higher-income individuals have been slowing. At the same time, lower-income households are still a relatively untapped market.

In addition, households buying their first PCs are more likely to purchase software, peripherals, and services than repeat buyers, the report said.