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PC retail revenues lag way behind unit growth

Figures for 1999 reveal that sales of desktop computers to consumers through traditional retail channels have seen a 37 percent rise, a research firm says.

Top five PC makers chart Retail sales of desktop PCs shot up in 1999, according to a new study, driven by ISP rebates and bargain-basement prices.

But success has come at a cost as revenue is growing less than one-fourth as fast.

Sales of desktop computers to consumers through the traditional retail channel, including consumer electronics and office supply stores but not direct sellers like Gateway and Dell, shot up 37 percent in 1999, according to the survey from market research firm NPD Intelect. Compaq led the market in terms of unit shipments, with 33 percent of the market, while Hewlett-Packard came in first by revenue, with 35 percent of the market.

NPD Intelect polled over 10,000 separate stores from 100 different retail chains in compiling the yearly figures.

Although retail stores are benefiting from healthy sales volumes, the numbers do not mask the ongoing trouble the PC market is having as a result of the free fall PC prices have experienced over the last few years. Despite the staggering 37 percent unit growth, revenues only grew by 9 percent, a gap reflected in the woes PC makers have been reporting in earnings announcements this week.

"A lot of it has to do with Emachines--they lowered the bar in terms of how low prices could go." said NPD Intelect senior account manager Lisa Schmidt. "Emachines certainly sold a lot of units, and Compaq and HP have had to lower their prices as a result."

Last year also saw heavy consolidation, according to the survey. Market share for middle- and bottom-tier manufacturers fell by 53 percent, while manufacturers like IBM, Packard Bell and Acer exited the market. At the same time, newcomer Emachines proved its cheap PC popularity was no fluke, maintaining a position in the top five in terms of both revenue and unit shipments.

"I think it's a little surprising how well Emachines has been able to maintain their success," Schmidt said. "They're not a six-month phenomenon."

Sales last year also rose dramatically in the third quarter, as retailers began unveiling new rebate plans for customers who signed up for long-term Internet service contracts. Under the terms of the rebates, those who agreed to three-year contracts would receive rebates of up to $400 off PC products, which resulted in free or nearly free PCs from Compaq, HP, Emachines or any other company offering a sub-$500 system.

"The back to school volume was exceptional," Schmidt said, noting that December unit growth, typically a very strong sales month, was down from the third quarter.

Apple Computer rounded out the top five computer makers, still riding the wave of its popular iMac line of home computers. Although the iMac is still one of the more popular models offered at the retail level, the enormous enthusiasm among consumers for the curvy computer has waned somewhat, Schmidt said.

"When Apple first introduced the iMac, it had a lot of steam," she said. "But at some point you would expect that things would stabilize a little bit, and that's what's happening."