| | Loaded With New Features,PCs Are Selling Like It's 1999
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Personal computers are back.
For the first Christmas since sales started cooling in late 1999, home-PC sales may turn in a strong finish this year, spurred by buyers replacing older machines and the wider acceptance of home-PCs as entertainment-and-imaging devices rather than merely Internet cruisers.
After declining for three years running, PC sales this Christmas season could be up by as much as 19%, says market-watcher NPD Group.
Gains that began with back-to-school sales in August have continued through the fall and carried into recent weeks, retailers and analysts say. And buyers are favoring more-profitable notebook PCs and richer desktops, helping boost retailers' profits.
"Based on our Thanksgiving weekend results, we have more confidence in this Christmas's selling season than we have had in the last four years," says Larry Mondry, chief executive officer of CompUSA Inc., a Dallas-based chain of computer superstores owned by Mexico's Grupo Sanborns SA.
PC makers echo that view. Dell Inc., Austin, Texas, says Thanksgiving weekend visitors to its U.S. home-PC site were up 20% over last year. Hewlett-Packard Co., Palo Alto, Calif., says it was "very pleased" with its holiday sales activity. At many Best Buy Co. stores, a low-priced notebook PC sold out within minutes of the Richfield, Minn., retailer's Black Friday openings.
Of course, the recent sales lift is tepid compared with the latter part of the 1990s, when end-of-the-year buying drove up PCs sales by 25% and more. Lackluster sales in recent years even helped convince electronics retailers Ultimate Electronics Inc., of Thornton, Colo., and closely held Gregg Appliances, of Indianapolis, to abandon PCs altogether this year. In part, the double-digit increases this year are partly due to weak PC sales a year ago.
"Once we got past June, we started looking at pretty easy comparisons to last year," says Stephen Baker, director of industry analysis at NPD Group, of Port Washington, N.Y. "It would have been pretty hard for things to have been a total disaster" given the past declines, he says.
Added features have also added interest. Shoppers like Michael O'Sullivan, a Watertown, Mass., retail finance executive, are looking for PCs that can handle more than e-mail and work-at-home duties. Mr. O'Sullivan says he wants a new machine with expansive disk drive for holding digital images, and perhaps a DVD writer for storing digital video.
"We anticipate having it for a number of years. We now do things with a digital camera, and we might get something with a video camera, too," Mr. O'Sullivan says. He hopes to trade up to a Dell PC or Apple Computer Inc. Mac that would allow such uses, but he hasn't made a final decision.
His last PC's only entertainment feature was a CD player. He decided to discard it after a computer virus disabled the machine's disk drive. Its replacement will have "more of the bells and whistles" than the old machine, he says, citing interest in CD and DVD writers.
Unlike in past booms, there is no single feature, such as a new operating system or chip, fueling this year's sales pickup. Instead, buyers who have been on the sidelines now are eager for a complete update, brightening their new machines with snazzy flat liquid-crystal-display monitors, photo-imaging software, CD-writers, DVD players, and 3-dimensional sound systems.
"We're finally starting to see some of that convergence we've been talking about for so many years come to fruition," says Michael J. Larson, an H-P senior vice president. "It's helping drive that replacement cycle for newer, bigger, faster PCs."
A sharp upturn in the U.S. economy is also helping, along with a lift in spending-power from income-tax cuts and home refinancings.
In response to the trend, analysts have been ratcheting up their estimates of 2003 unit sales. Bear, Stearns & Co. doubled its estimate for PC-unit growth this year, saying now that it sees unit sales rising 12% this year and as much as 15% next.
Vadim Zlotnikov, a Sanford C. Bernstein & Co. equity strategist, says many of the gains in recent spending can be traced to upper-income families, who have borne the brunt of job cutbacks and stock-market losses in recent years.
"The high-end consumer has always had money. What's changing is their willingness to spend," he says. "PCs are one of the areas where you see pent-up demand to upgrade and buy new things."
Newer buyers tend to be middle-income college-educated adults in households with children, according to household surveys conducted this year by Odyssey LP, a San Francisco research firm. Access to the Internet, which had long ranked as the primary reason to buy a PC, this year has been eclipsed by adult education, finances and entertainment, said Rich Hill, Odyssey's manager of business development.
That shows up in the tendency to buy more-expensive desktops and notebook PCs, which are selling faster than low-cost PCs. During the August back-to-school selling season, notebook unit sales at retail outlets jumped 40% over last year, contributing to an overall revenue increase of 10% for retailers, NPD Group says.
Repeat buyers also tend to buy higher-priced machines. Dawn Lesley Stewart recently bought a mid-price Gateway Inc. 500X desktop to replace an older Dell machine. She figures she spent half as much on her new PC and a 15-inch LCD monitor as she did on her old PC.
"I spend a lot of time on the computer," says the 44-year-old Massachusetts author and Web designer. "I needed a computer with the power to handle a variety of applications."
While she originally planned to buy just the computer and use an existing display monitor, an advertised sale of a computer bundled with the LCD monitor tipped the scales to a trade-up. The old monitor will become a spare, she says.
Retailers say a bright Christmas should give PC sales some much-needed momentum through the coming year. "There is some pent-up demand," says CompUSA's Mr. Mondry. "As a result, we can expect to see some reasonable increases throughout 2004."
Write to Gary McWilliams at gary.mcwilliams@wsj.com
Updated December 10, 2003 |
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