Second half looks better, for some

Moderate growth is expected for the PC industry in the second half, but it will be mostly the major players that will benefit.

Michael Kanellos
Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
3 min read
Moderate growth is expected for the PC industry in the second half, but it will be mostly the major players that will benefit.

Dell, Gateway, Compaq, Intel, and Advanced Micro Devices are expected to report growth in revenue and/or unit sales in the second half, according to various estimates, largely as a result of continuing demand in North America and Europe.

But second and third-tier players may end up seeing their fortunes dive. Once popular AST Research may see its unit shipments drop by 25 percent in the third quarter in the U.S. compared to the same period a year ago, according to Matt Sargent, an analyst with Computer Intelligence. This follows a 28 percent decline for the company in the quarter before.

Packard Bell NEC and Acer, meanwhile, seem on track to experience declines in unit sales of 14 and 8 percent, respectively.

The half-empty/half-full predictions for the industry come as a result of a confluence of factors. An inventory glut that plagued the industry in the first two quarters has finally dried up, according to various sources.

Without warehouses chock-full of unsold PCs, vendors are now in a position to sell what they manufacture.

At the same time, weakening demand in Russia, Asia, and Latin America has been offset by continuing purchasing in North America and Europe, according to a recent report from International Data Corporation. PC shipments will grow by 12.2 percent in the second half worldwide, faster than the 9.6 percent growth experienced in the first half.

Overall, the PC shipments will grow by 11 percent for the year. This is slower than last year, and slower than the 13 percent predicted in the beginning of the year, but better than mid-year sales reports.

And, of course, there are no guarantees that even the big players will do well. Hewlett-Packard CEO Lew Platt said recently that his company was seeing a slackening of demand in North America. The company recently imposed expense restrictions.

The wealth is indeed not being spread evenly. Major PC vendors are continuing to grow their unit shipments at two to three times the market rate. In many ways, multiple growth is a necessity. Despite the growth in units, the average selling price on PCs has been dropping quarterly, according to Ashok Kumar Piper Jaffray, which means that each vendor has to sell more units to maintain earnings.

"We have to look at it one quarter at a time," Kumar said. "About one-third of the economies are in a recession or approaching a recession. The only visibility we have is a few weeks."

The discrepancy between the big five and the rest of the industry is astounding.

Dell, for instance, grew its shipments at more than five times the market rate in the second quarter. Gateway CEO Ted Waitt recently said in a conference call that unit shipments for his company were up more than 50 percent in some segments. The top five PC vendors in the U.S. grew unit shipments by 23.6 percent in the second quarter, according to IDC.

By contrast, everyone outside the top five saw their unit shipments drop by 8.2 percent. Membership in the top five was not a guarantee of success, either. Packard-Bell's unit shipments dropped by 10.5 percent in the U.S. during the second quarter and by 8.7 percent worldwide, according to IDC.

Worldwide, IBM saw its shipments decline by 4.1 percent, said IDC, although Sargent said that IBM is showing a recent surge of growth on the strength of its mobile line.