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PC sales-drop slows; notebooks still hot

Notebook PCs are gaining popularity, and for many families, the machines have become the "new desktops," boasting faster processors and better graphics and sound.

The drop in PC sales at U.S. retail stores slowed significantly in March with sales declining by 7.6 percent--much less than in previous months.

And though desktop sales declined, notebook PC sales continued to be red hot, increasing by more than 30 percent for the second month in a row.

March's 7.6 percent overall retail unit sales drop compares with a 17.2 percent year-over-year drop in February. Figures were released by NPD Techworld on Thursday.

Notebook unit sales increased by 32 percent year over year from March 2001, compared with a 30 percent year-over-year rise in February. Desktop PCs also fared a little better. In March, desktop unit sales decreased by 17.5 percent year over year, compared with February's 25 percent decline.

Notebook PC sales are hot because for many families the machines have become the "new desktops." Notebooks have come down in price by several hundred dollars since 2001, while gaining features that help close the quality gap between notebooks and their cheaper, but desk-bound, brethren. Faster processors, higher-resolution screens, better graphics and sound, and even the ability to burn CDs have made portables more appealing. As evidenced by the sales numbers, many home PC buyers have opted of late to spend a little extra money and sacrifice some performance to uncuff themselves from the desk.

However, the continued rise of the notebook is not a sure thing. Prices, which fell drastically last year, may be creeping back up, NPD analyst Steve Baker said. The average price of a notebook increased by $17 from February to March, to $1467, and while that's well below March 2001's $1604 average, it's still an increase.

"Right now the expectation is that average prices will go up" in April, Baker said. "But it's very difficult to determine whether that's the result of (component) price increases...or a short-term trend toward the higher-priced Pentium 4 processor" notebooks.

Still, the pricing issue is nothing if not complex.

Though the average price of some Celeron-based notebooks has increased since March, the trend toward higher prices looks more like a shift away from lower-priced Celeron notebooks toward more expensive Pentium 4-M, notebooks, Baker added.

Meanwhile, prices on notebooks based on Advanced Micro Devices' mobile Athlon processor have held steady, while prices of Pentium III-M systems have decreased a bit. The Celeron notebook price increases could be the result of notebook makers reducing the rebates they often pair with these systems, Baker said.

While prices are fairly fluid, some PC makers are moving higher. Those manufacturers, such as Sony, have upped prices by $100 to $200 on notebooks. Sony raised prices in early April, citing more expensive components, especially LCD (liquid-crystal display) panels and memory. Memory prices, however, have since fallen somewhat.

PC makers have also refreshed many of their systems for the spring. Launching new models at higher prices is a commonly used method of increasing average selling prices without raising the price of existing models. And manufacturers can also reconfigure a PC, maintaining its price but removing features, such as decreasing the memory or using smaller hard drives to save cost.

Intel, which has begun to reduce prices on its Pentium 4-M chip, may help offset some of the higher component costs. The company cut prices on Celeron chips in April and is expected to make a Pentium 4-M price cut this month. It has also been doing other things to help bring down the price of Pentium 4-M notebooks. It introduced less expensive 1.4GHz and 1.5GHz versions of the P 4-M in late April. The new chips list for $198 and $268, well below the $637 price tag of the 1.8GHz P 4-M.

LCDs, which notebook makers say are still in fairly short supply, may be the dark horse when it comes to rising component costs.

With final numbers still coming out for the month, it's still unclear what the combination of the more expensive Pentium 4-M systems and other price increases will do to affect sales.

But with unit shipment growth of more than 30 percent two months in a row, the retail notebook market is "strong, and it looks like it's going to stay that way," Baker said.

Indeed, there was a 5 percent jump in sales of notebooks priced more than $2,000 during March. The uptick is attributable to the debut of Pentium 4 notebooks early in March.

However, the best-selling notebook for the month was Toshiba's Satellite 1005. The notebook, which offers a 1.06GHz Celeron chip from Intel and a 14.1-inch screen, sold for an average price of $967, Baker said.

The machine makes a case for keeping prices low, as about 13 percent of total units sold during March were priced below $1,000.

But Baker feels there is also room for higher-priced machines, where buyers seek a notebook with near-desktop performance. The key will be in manufacturers holding the line on prices of their less-expensive machines.

"There's a definite trend to be aggressive on price on the low end, but there's still a pretty good market in the $1,500 to $2,000" range as well, Baker said.