Consumers stayed away from computer, peripherals, and software purchases last month as they awaited the release of Windows 98, according to new research.
Retail desktop computer sales dropped 18.5 percent in May, according to research conducted by PC Data, as PC makers held off on releasing new systems and consumers waited for Windows 98 machines.
Vendors like IBM that offered certificates for free Windows 98 upgrades were able to sidestep the lull's impact. The free upgrade essentially allowed IBM to reduce inventory of aging models before Windows 98 systems hit the stores.
"The idea was to have as little product in the [retail] channel as possible," said Roger Lanctot, director of research for PC Data. "IBM shipped with a free Windows 98 upgrade as a way to clear out their old Aptivas."
PC companies that did not offer free upgrades, or only discounted ones, watched their sales slip in May, he said. "Compaq, Packard Bell, and HP held off on the free upgrade strategy. A lot of the products on the desktop side were held back, in order to prevent an inventory backlog on the eve of Windows 98."
May's downward trend is expected to immediately reverse itself, now that Windows 98 has launched, he added.
In addition to customer reluctance to invest in pre-Windows 98 systems, sales were possibly affected by a more widespread PC industry slowdown, according to the ZD report. "It appears to be a Windows 98 slowdown, but it's definitely hard to tell," said Matt Sargent, Market Intelligence analyst.
Consumers are perhaps becoming more savvy to regular PC price cuts, and are not willing to pay full price for older models, Sargent noted. "We have not seen prices decline that much since January," Sargent said. "Prices have been kind of flat, and consumers have been conditioned to wait for lower prices."
Compaq was hurt most by the stagnation, watching its retail desktop share fall almost 10 percent to 22.7 percent in May. The slide cost the PC maker its No. 1 position in both the desktop and notebook market. Hewlett-Packard and Toshiba took over the top spots, respectively.
"Compaq got stuck with a lot of old systems, which, like old vegetables on the shelf, start to go bad after a while," Sargent said. "They're caught between a rock and a hard place: They want to make money and stay a market leader and it's very hard to do both."
Software sales also took a hit last month, despite the fact that Windows 95 software is mostly compatible with Windows 98. "Consumers don't always act in a rational fashion," Lanctot noted. "Even though 'Windows 98-compatible' is almost a superfluous label, any time you have a significant operating system upgrade, consumers are going to be hesitant to buy new software."
Finance software sales declined 13 percent, followed by business and educational software. Gaming applications actually rose three percent, a testament to the strength of that market segment and also Windows 98's support for Microsoft's DirectX gaming technology.
"This is clearly one category of software that is made for Windows 98, and there's no reason to wait if you're buying gaming software," Lanctot said.
Along with software and hardware items, peripherals that are newly supported by Windows 98 should get a boost. The upgrade features "native" hardware support for DVD drives, TV tuner cards, and other USB-compliant peripherals.
"Any kind of plug-in that Windows 98 will enhance will gain tremendously," he said, mentioning the possible exception of hard drives: Windows 98 features FAT 32, a new file allocation system that manages hard drive space more efficiently.