Brian, add this one to the list of articles where the headline isn't justified by the content. I wouldn't know where to begin to criticize - so I won't.
PC Industry Braces
For Weaker Sales Next Year
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
December 22, 2005
Personal-computer sales this year are headed for their weakest gain since 2001, according to the latest shipments data, and some industry executives worry that PC sales next year could be worse.
This year's estimated 6% increase in home-PC unit sales, down from a 10% gain last year, reflects increasing competition for consumer dollars from flat-panel televisions, experts say. TVs are pinching sales of midpriced PCs, and expected price cuts in the flat-panel offerings could make the PC business even tougher in 2006, they say.
A 41% gain in unit sales of notebook PCs during Thanksgiving weekend and a16% rise in Thanksgiving sales of desktops, which had been falling all year, could be the last hurrah for this year's home-PC business. A surge in consumer portables, which tend to be more profitable than desktop PCs, and ultralow desktop prices have helped avoid a steeper showdown in sales.
"Next year, there's more concern about saturation in notebook sales and competition from the under-$1,000 TV market," says Stephen Baker, vice president of industry analysis at retail-sales tracker NPD Group. A year from now, high-definition DVDs should be more widely available, he said.
A slowdown in the 10-year run of home PCs as one of the most popular Christmas gifts has been predicted for several years. Notebook PCs, with entertainment features such as a DVD player and wireless Internet access, have kept sales hot as consumer interest in desktops waned.
This year's sales were bolstered by price cuts to as low as $398 for notebooks and $299 for desktop PCs. Notebook units edged desktop sales for the first time during Thanksgiving weekend, Mr. Baker says.
But also that weekend, he says, liquid-crystal display TVs selling for $200 and plasma TVs for $1,000 made their first appearance on the market. Such low-cost, flat-panel TVs are threatening what had been the sweet spot of the home-PC business -- midpriced, $800 to $1,000 PCs.
In the last year, many customers have shifted to very low-cost -- under $400 -- PCs that provide all the power needed for today's applications. A few have indulged in souped-up gaming machines that sell for $1,200 to $1,700, but their numbers aren't enough to turn the tide of shrinking revenue.
Retailers say strong sales of smaller liquid-crystal display TVs, MP3 players and satellite radios are this year's holiday standouts. In contrast, PCs sales are heavily shifted to low-cost machines that have forced suppliers to look elsewhere for profits.
"The higher-end [PC market] is doing pretty well and the low end is doing very well," says Lawrence N. Mondry, chief executive of electronics retailer Comp- USA Inc. "The middle [segment] is tougher." To make up for lower profits as sale prices shrink, he and other suppliers are beefing up notebook offerings and making after-sales service a key part of their marketing efforts.
Dell Inc. launched a line of pricey gaming notebook-and-desktop PCs that offer dedicated support lines. Best Buy Co. added 2,500 technicians to Geek Squad, its PC-service unit, during its last quarter, bringing the technician total to nearly 12,000.
"You have to have services; it's a big business taking care of people who have these problems," Mr. Mondry says. Comp- USA has some 400 classroom and 20,000 specialists who do house calls, he says.
The retailer carries about 50 portable PCs, up from about 30 last year, at its 244-store chain. Virus-elimination services and worries about spyware are providing manufacturers and retailers with a way to introduce their training-and-installation services to consumers.
Toshiba Corp.'s sub-$1,000 notebook-PC sales have jumped this year as customers traded up to wide-screen displays and wireless Internet access. Toshiba thinks the expected introduction of Microsoft Corp.'s Vista PC operating system will offset any sales softness in PC sales next year, says Mark Simons, vice president of the digital-products division of Toshiba America Information Systems Inc.
"That will definitely give a big boost to next Christmas's selling season," Mr. Simons says.
Write to Gary McWilliams at gary.mcwilliams@wsj.com1
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