Questions about demand linger as warnings hit PC sector
October 06, 2000 12:00 AM PT
by Michelle Rushlo
Wave after wave of disappointing news has been washing over the computer sector, again raising questions -- but not clear answers -- about whether the PC market is softening.
In mid-September, personal computer maker SCI Systems (SCI) issued a profit warning for its quarter. Then, chipmaker Intel (INTC) issued its own earnings warning, followed closely by box maker Apple (AAPL). Since then, Dell (DELL) has also joined the pack, warning Wednesday that the first two months of its current quarter are likely to be about 3 percent below expectations.
"I think the demand is slow. That's pretty clear," at least in the consumer market, said Jason Wells, an analyst who covers Apple and Gateway for Wit SoundView.
The consumer market and the small- and medium-sized business markets are slowing, as is Europe, he said.
"Is the business reaching maturity? Could be," said Daniel Kunstler, an analyst at JP Morgan, after Apple's announcement.
PC buying slows
As the number of households without PCs shrink, those left become increasingly price sensitive, he said. Price sensitivity could also deter widespread second-PC buying.
Rob Enderle, vice president of desktop and mobile technology at Giga Information Group, said he believes business customers, too, are more reluctant to buy. They are starting to fight back against the notion that PCs need to be replaced every three years, he said. "They are basically saying we want a four-year machine."
While the cost of desktop hardware has fallen, the cost of installing it makes upgrades expensive, once companies consider the time it'll take to transfer an employee's files over and reconfigure the desktop properly, Enderle said.
"It's so disruptive and expensive to change," that people are waiting longer to buy new hardware, he said.
Bulls linger
Other industry watchers, however, remain bullish about the future of PC demand.
Stephen Baker, vice president of technology products at PC Data, a research firm that uses resellers to monitor sales, said that pricing and options have never been better in the personal computer market, and there is no fundamental reason for people not to buy.
He said about 60 percent of U.S. households have computers, and the number will probably top out around 75 percent. But there will be others that will become two-PC households as they add second computers for their children and other users.
"You have more than one television. Why wouldn't you have more than one PC?" Baker said.
Bruce Stephen, vice president of personal systems research at International Data Corp., agrees that demand growth will remain strong.
Parts of the market, like corporate desktops in the United States and Europe, have been sluggish, but Baker said that is probably because many companies updated their systems before Jan. 1 in preparation for potential Year 2000 problems.
Those companies are pausing to use those assets, he said, but demand will likely pick up again in the coming year.
Overall, IDC is forecasting PC unit demand will grow about 19 percent this year and a slightly lower 17 percent next year, Baker said.
What can fuel interest?
He said entertainment advances like DVDs and other entertainment features will continue to fuel interest in new consumer PCs in the United States and Europe. Other growth will come from emerging markets like China, India and Brazil, Stephen said.
David Albritton, a Compaq Computer (CPQ) spokesman, said the world's largest PC maker is seeing typical seasonal fluctuations but that Compaq saw good demand from education buyers during the quarter that just ended.
The challenge, he said, is to keep product demand fresh, and the company feels it has done that. "That puts us in a strong position," he said. Compaq is expected to release its quarterly earnings results Oct. 24.
Michelle Rushlo is a reporter at UpsideToday covering big-cap technology companies. If you would like to submit a letter to the editor regarding this story, email online@upside.com. |
