Outlook brightens for PC makers

This year has been a tough environment for PC makers, but a closer look reveals that upside is just around the corner.

2 min read
This year has been a tough environment for PC makers. Unit volume increased 9.6 percent year-over-year, well below the high-teens growth of 1997, while average selling prices have plummeted. But a closer look reveals that the outlook for PC makers has brightened.

Why it's been a tough year
The cause of the trouble is twofold. First, most major PC vendors suffered from bloated channel inventories, which slowed production so the channels could clear outdated stock. This build-up hurt share prices. Second, the international market has been dismal. The problem was particularly acute in the Asia-Pacific region, once a hotbed of PC growth, where unit volume fell 3 percent year-over-year last quarter, excluding Japan, which fell a massive 14 percent. There is little relief in sight for this region. The Asia-Pacific region will probably record another decline in the current quarter. Japan should show modest growth of between 1 percent and to 2 percent over last year, due to the dramatic fall in demand last quarter.

For the year, IDC Consulting predicts global year-over-year unit growth of 11 percent, helped by 16 percent unit demand this quarter in Europe, which has escaped economic turmoil so far. However, both Japan and the Asia-Pacific likely will show a year-over-year decline for the full year of 2 percent or more.

Improved outlook for the United States
The outlook for the U.S. market certainly has improved. The PC companies have inventory back to normal levels, and we can expect a ramp-up in production. Consumer demand for sub-$1000 PCs and laptops remains strong. IDC forecasts a 14 percent increase in domestic volume this quarter. According to BT Alex Brown analyst Erika Klauer, the number of PC units shipped should increase by 15.8 percent per year until 2001, with sub-$1000s making up 35 percent of total U.S. demand and between 18 percent and 20 percent of total worldwide demand. Sub-$1000 PC growth should outstrip the market by a significant margin.

Who stands to gain?
Major beneficiaries of the growth will be Dell Computer; Apple Computer, which is doing well with sales of the new iMac; Compaq Computer; Gateway; and Hewlett-Packard. These companies will continue to gain market share at the expense of IBM, NEC, and other smaller players.

Individual Investor Online is a periodic contributor to CNET NEWS.COM.

Go to Individual Investor Online

Story Copyright © 1998 Interactive Investor Group. All rights reserved.