Prospects Brighten for Worldwide PC Sales

UPDATE: Stronger-than-expected consumer demand helps bolster growth forecasts for worldwide PC shipments but pricing remains the vendors' biggest challenge.
Posted August 14, 2003

Bob Liu

One of two leading forecasters of the PC market is ratcheting up its global industry outlook thanks in part to a stronger-than-expected surge in consumer activity in the U.S. and Europe during the second quarter.

"The consumer is the main reason for the PC growth. Worldwide, the consumer is acting very strong," said Kiyomi Yamada, Gartner's industry analyst for computing platforms worldwide group.

As a result of its second quarter findings, Gartner on Thursday ratcheted up its worldwide PC shipments forecast to a growth rate of 9.6 percent in the third quarter, with unit shipments now expected to reach 39.8 million. Prior to the revision, analysts projected a 8 percent increase.

For the full year, Gartner projects PC shipments to grow 8.9 percent to reach 161.3 million units. A rise of 7.2 percent was previously forecast.

But while the upward revisions (albeit slight) represented a positive sign for the industry, PC vendors remain under intense pressure to squeeze out unit shipments at the expense of margins. And Gartner remains "cautious" about any sustained recovery given the current economic conditions and business IT spending habits.

"Prices are dropping," Yamada told

For instance, even though unit shipments growth rates are approaching 10 percent, total revenue from PC shipments is only expected to rise 3.1 percent to $47.1 billion in the third quarter and 3.5 percent to $192.1 billion for 2003, the analyst cited.

And that disparity between unit shipments and total revenue is due largely to the very nature of the consumer market: consumers now are much more price-sensitive than enterprise customers in years past, she explained.

That, however, hasn't stopped PC vendors in courting the consumer market. Earlier this week, Hewlett-Packard announced plans to spend $300 million in its largest-ever consumer marketing campaign. And Yamada expects to see more participants hopping aboard the consumer marketing bandwagon.

"It's nice initially but it takes time to utilize all of the devices. We still cannot connect PC to consumer electronics devices. It's really in its early stages. We have to wait to see a little bit longer what the effects of that will be. But those kinds of initiatves will be popular going forward," she explained.

The notebooks segment remain one of the major drivers of the growth as performance improvements continue to drive whitebox notebooks sales and prices of Wi-Fi-enabled units approach the reach of non-business users, analysts said.

However, one of the biggest challenges PC vendors face is the elongated cycle of replacing older units. Gartner analysts said the anticipated replacement cycle has been slower than expected and isn't likely to be evident until early 2004. Users are still replacing machines as they reach the end of usable life but often those upgrades are being delayed.

Gartner's revision was released the same day that Dell is scheduled to report its second-quarter results. Financial analysts expect the Round Rock, Texas-based PC vendor to register double-digit growth in both enterprise and home PC sales.

In fact, based on preliminary rankings for the second-quarter, Dell tops the worldwide and U.S. PC market with growth rates of nearly 30 percent. And that growth is coming at the expense of HP and nearly every other vendor, Yamada said.

IDC, the other leading shop tracking the PC market, said its updated forecast won't be available until early September.

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