PC upgrade cycle on hold, report says

In a new report, Gartner concludes there will be mostly coal in PC makers' stockings for the fourth quarter because consumers and businesses are squeezing more out of their old computers.

Bottom line: The worldwide PC industry is on pace for PC shipments to reach 127.3 million units in 2002, an anemic 1.8 percent increase over 2001 shipments, said Gartner. So far, 2003 is shaping up to be a better year, but growth will still be about 7 percent--off the high double-digit pace of previous years. In Gartner's study, PCs are defined as desktops, notebooks and servers priced under $25,000.

Traditionally, consumers and businesses have replaced PCs every three years or so. Although the need is still there to upgrade PCs, customers are delaying new PC purchases. Increasingly, PC users are choosing to extend the life of their current machines far past the three-year replacement cycle. Weak incentives to upgrade and concerns about the economy are helping prolong the cycle, said Gartner.

Even though processor speeds have reached 3GHz and prices on extras like DVD burners and flat panels have come down, most people can still get by on PC with a 700MHz or 800MHz processor, 128MB of RAM and a 10GB hard drive.

"Given that home PC penetration is relatively high in the world's developed economies, limited funds may induce users to extend the life of their PCs," Gartner analyst George Shiffler said in the report. "Many families may also choose other devices such as game consoles, DVD players and digital cameras instead of upgrading their old PCs."

On the business side, IT departments continually replace older computers, said analysts. That means businesses refrain from buying new PCs all at once.

Dell Computer CEO Michael Dell estimated on a conference call Thursday that there are about 180 million PCs three years or older in the field.

But outside of a few companies doing large-scale purchases of PCs, most are replacing servers, updating software or adding storage capacity. "There are no current signs of a strong rebound in corporate IT spending," Jim Schneider, Dell's chief financial officer, said on the call.

Statistics tell the tale. Across the industry, desktop sales were down about 10 percent in October from a year ago, while notebooks saw high single-digit growth, said NPD Techworld analyst Steve Baker, who added that the peak holiday-selling season may be weak.

And even though notebooks continue to sell well at retail, consumers haven't lined up in the numbers some had hoped to see, according to NPD.

"Overall, things are still not where everybody would want them to be," Baker said.