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PC paradox: slow sales, strong market

PC sales dragged the fourth quarter of 1996, but slowed double-digit growth is a sign of a market that is growing up, not old.

PC sales dragged the fourth quarter of 1996, but slowed double-digit growth is a sign of a market that is growing up, not old.

That's the conclusion of International Data Corporation's and Dataquest's preliminary 1996 round-ups for personal computer markets sales.

IDC reported worldwide unit shipments rose 16 percent and Dataquest reported a slightly-higher 18 percent growth. But despite differences, both noted that sales were down; it was the first year since 1991 in which sales did not increase by at least 20 percent.

The fourth quarter was the slowest across the board. But, Europe's economic problems contributed to the drop-off to 11 percent growth, down from 27 percent over the fourth quarter of 1995. The German PC market, third-largest in the world, was stung in the fourth quarter by the pressure of record unemployment levels.

"Unemployment is very high, there is a lot of anxiety, and consumer confidence is low," said IDC analyst Kevin Hause. Businesses aren't concerned with buying new computers either, but rather with keeping the ones that they having going and investing resources elsewhere, he added.

U.S. growth came in at 15 percent, following a very strong 1995 of 23 percent growth, due to the introduction of Windows 95. Some manufacturers falsely expected the high volume of sales to continue through 1996 and overstocked their dealers which resulted in poor shipments in the first quarter as retailers scrambled to unload excess units.

"Fifteen percent growth is still very, very healthy. We are more in an upgrade cycle, instead of expanding the base. Most of your high-income families already have a PC," added Hause.

Every year the base number of units sold changes, Hause explained. This year's base number was exceptional because of last year's huge growth of 23 percent. So even while 16 percent seems smaller, growth 1996 surpassed 1995's results. The market cannot continue to grow at that kind of exponential rate, said Hause.

"It is a sign of a maturing industry. In 1996, there were really no new technologies. PCs were a little bigger with a bigger hard drive, a little faster, and a little cheaper, especially with plummeting memory prices," and there was still double-digit growth, added Hause.

That level of saturation left room for growth in the low-end market which kept Compaq (CPQ) the leading vendor of worldwide and U.S. sales. The company also topped the sluggish fourth-quarter sales.

Compaq held onto the its number-one spot in the United States and worldwide for the fifth quarter in row, although IBM (IBM) narrowed the gap with its traditional year-end surge. Compaq had strong sales in both its business and consumer lines. Portables contributed to its lead, as the company greatly improved availability of the popular notebooks which were introduced in the third quarter.

"It comes down to having the right products at the right price. They have aggressive marketing and name recognition. Those things really make a difference in a year when there really aren't any new technologies. Consumers are buying off of their reputation" said Hause. In 1996, Compaq sold over 7 million units worldwide and held over ten percent of the market share. IBM followed with 6 million units sold and cornered nine percent of the market. Packard Bell held six percent of the market; Apple Computer held five percent, and Hewlett-Packard held just over four percent of worldwide sales.

This year will continue to post healthy results, especially with the introduction of new technologies such as Intel's MMX technology and DVDs.

"We are going to see very healthy growth, possibly better than 1997, but I don?t think we?ll be back above 20 [percent growth]," he added.