Market data for December and the fourth quarter of 2000 paint a dismal future for PCs--with flat rather than more typical double-digit sales growth--but notebooks show surprising resilience. In fact, after years of being stalled at about 20 percent of the overall PC market, notebooks are widening their share at the expense of desktop systems.
Portable PC sales are doing so well, in fact, that many computer companies may shift their sales focus to notebooks away from desktop PCs, analysts say.
"Mobile PCs are what is going to drive market growth for PC vendors," said Dataquest analyst Mostafa Maarouf. "For a company that wants to continue to grow the same way they have historically--20 to 25 percent--they're going to have to stay outside of desktops. Mobile is the one clear winner."
Dataquest's preliminary estimates for fourth-quarter shipments of notebook and desktop PCs show a widening gulf between the two product categories. Worldwide, notebook shipments grew 21 percent year over year, compared with paltry desktop PC growth of 1.6 percent. In the United States, notebook shipments increased 6 percent over fourth quarter 1999, while desktop PC shipments stalled at 0.1 percent growth.
Market data for the retail sector, which is heavily dominated by consumer sales, shows similar trends. NPD Intelect last week reported retail notebook sales surging 17 percent in December compared with a year earlier, while desktop PC sales declined 5 percent. For the entire fourth quarter, notebook sales grew 16 percent year over year.
Perhaps more startling was a shift in the revenue mix. In the wake of collapsing desktop sales, notebooks in the fourth quarter increased their overall position in PC retail revenue to 26.9 percent of the combined desktop/laptop market from 22.8 percent a year earlier, according to NPD Intelect.
At the same time, prices increased rather than declined. The average retail-sale price rose to $1,725 in the fourth quarter from $1,709 a year earlier, according to NPD Intelect.
The value factor
Notebooks are expected to show more resilience recovering from fourth-quarter sales sluggishness than PCs, say analysts. Desktops may account for the lion's share of PC revenue, but notebooks are expected to continue closing the gap.
The market also is less saturated than that for PCs. Maarouf used the corporate segment, where 20 percent of computer users rely on notebooks, as an example.
"Every employee who needs a PC has one already," he said. "But of those desktop users, potentially 80 percent are notebook buyers. One way for vendors to generate sales is to offer notebooks and to narrow the price gap between the notebook and the desktop."
In the United States and Europe, desktop PCs have shifted to a replacement from a growth market. Maarouf expects that companies with strong services organizations will use the growing notebook market to bridge the gap with the more mature desktop PC segment.
"As opposed to going in and just selling 2,000 notebooks, a vendor could offer a deal to upgrade to Windows 2000," he said. "That would kind of help build that relationship, so even if they're not buying as frequently, you have a strong relationship the next time they buy."
Falling component prices, particularly for LCDs (liquid-crystal displays), also are expected to lead to lower notebook prices. LCD panels typically account for as much as 40 percent of a laptop's cost, say computer makers. Lower prices are expected to have the most impact on consumer sales.
But the major factor fueling notebook sales is increasingly better-perceived value over desktop PCs. While there have been no recent compelling changes to desktop PCs, notebooks are benefiting from advances in wireless communications, mainly in the form of 802.11B and Bluetooth networking, say analysts.
"PC makers have been struggling to find a reason for people to buy PCs," said PC Data analyst Stephen Baker. "Clearly, mobile products offer a reason, especially if you look at the amount of handhelds sold over the holidays."
World without wires
Maarouf sees wireless networking as a clear driver of notebook sales in 2001 and beyond, particularly with 802.11B terminals available in 30 airports around the country and in major hotel chains. The next step is wireless networking coming to "other public places, like restaurants and coffee shops," he said. "The value proposition for wireless LAN in public places is really, really strong."
Apple Computer, Dell Computer and IBM are among the major manufacturers offering wireless-networking antennas integrated inside their notebooks. Compaq Computer later this quarter is expected to launch new Armada models with MultiPort, a connector supporting wireless devices.
Other innovations point to a growing notebook market, while the desktop PC segment stagnates, say analysts.
"You're now starting to see some interesting differentiation among mobile products, much more than the desktop," said ARS analyst Matt Sargent.
IBM, for example, developed the ThinkPad TransNote, a full-function portable that also can interpret data and drawings written on notepads. Big Blue also is testing a wearable PC, as well as a new mobile companion, the WatchPad.
Apple and Dell have opted for putting the most performance in the smallest size possible. Apple's Titanium PowerBook G4 and Dell's Inspiron 8000 and Latitude C800 notebooks rival some workstations in terms of power and features.
Maarouf said there is only one conclusion to draw from what's happening in the mobile market place.
"The notebook market will significantly grow as a percentage of the total PC market," he said. "There is no question about that."