The PC peaks sooner than expected
Who will be the winners and losers in Net revolution?
By Madeleine Acey, FTMarketWatch 9:30:00 AM GMT Dec 29, 2000
Madeleine Acey writes on technology for FTMarketWatch in London.
LONDON (FTMW) -- The personal computer industry has reached the beginning of the end. This is not to say that the PC is dead, but market growth is slowing and other devices are tipped to overtake the bulky boxes in a short space of time. Regional market
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Sales and profit warnings from PC and chipmakers -- including Compaq [US:CPQ], Gateway[US:GWAY] and Motorola [US:MOT] -- shook tech stocks in December and many industry observers don't think the problem is short-term.
PC sales growth is expected to slump from around 23 percent in 1999 to 12 percent in 2001.
Interactive television, games consoles and mobile phones are rapidly becoming the Internet connection methods of choice for the masses, especially in Europe.
Winners and losers
Some computer and component makers -- such as those that make flat computer and phone screens and low-power communications chips -- are looking forward to good times. And some PC makers are facing up to a world of slower earnings growth as they search for new markets.
Many companies have seen the changes coming. But it would seem the cooling of the U.S. economy and the popularity of alternative Internet access methods in Europe have crept up on the market leaders faster than anyone predicted.
So what's the threat? Internet market researcher Forrester says emerging broadband Internet content will be made specifically for TVs, not PCs. The first "killer app" for broadband connections will be Internet radio, aimed at TVs and MP3 players.
"In 2005, 191 million devices will connect via broadband," Forrester said. "PCs will constitute only one third (36 percent) of these devices."
According to senior Forrester analyst Bruce Kasrel, "PCs will be left for practical, task-oriented activities."
Businesses clip IT budgets
This would imply that companies will still buy PCs in great numbers. But Merrill Lynch and Morgan Stanley Dean Witter are reporting static or low growth in corporate IT budgets for 2001. Credit Suisse First Boston sees a serious decline in growth for the PC chip industry to 5.8 percent -- from an average of 15 percent.
In the longer term, the expected rise of application service providers, which centrally store software and other computer services to rent to businesses on a per-use basis, implies a potential for growth in "dumb" network computers at the customer end. Made by companies like Liberate Technologies[US:LBRT], these are cheaper, use less space and power and cannot be tampered with by employees.
Computer market researcher International Data Corp. expects 89 million "information appliances" to be sold in 2004, generating $17.8 billion.
Branching out
So some PC-oriented companies have tried to diversify. Indeed, the iPaq handheld computer seems to be the one promising product for Compaq -- which issued a fourth-quarter sales and profits warning in mid-December. Hewlett-Packard [US:HWP] is trying to be seen as an "e-solutions" company and even a 4G mobile phone infrastructure expert.
Software is one market that analysts think will gain from the slowdown in PC sales, as companies try to get productivity from budgets that won't allow new hardware. But Microsoft [US:MSFT] -- one of the software companies most reliant on PCs -- has tried to branch out, making versions of Windows to run on handheld computers, TV set-top boxes and phones.
But can Compaq take on Palm [US:PALM], which claims a 70 percent market share? Can HP really stand up to Nokia[US:NOK]? Even Microsoft may have trouble against the Psion-led Symbian alliance that has a significant portion of the handheld organiser and mobile phone software market sewn up.
Savvy Psion?
The more savvy hardware makers -- including Psion[UK:PON], 3Com[US:COMS], Nokia and Ericsson[SE:000010865] [US:ERICY], plus set-top box companies and specialist TV manufacturers like Bush -- have recognised how people want to use technology.
Psion and 3Com are making cheap, small, flat "tablet" computers with colour touch-screens for specific home and work uses. Nokia and Ericsson have a handle on the combined phone and organiser.
Bush and even Amstrad [UK:AMT] realise many home users want simple, combined TV-Internet or phone-Internet machines. They don't want spreadsheet and PowerPoint software in big beige boxes. They probably don't need a Pentium 4. They mostly want email, a browser, chat, TV, radio and phone. And they don't want to pay £1,000.
The companies that are possibly in the strongest position are the likes of Sony [US:SNEJF] and Matsushita [US:MC]. Such companies make TVs, computer games consoles, lightweight laptops, phones, audio equipment and chips. And Sony also owns entertainment content and is reportedly planning a tracking stock for its Internet Service Provider business next year.
Most PC companies are not in a position to compete with this level of convergence. Expect a shakeout in the medium-term. |
