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Is the PC Market Turning a Corner?
By Monica Rivituso
AMID ALL THE bellyaching about disappointing retail sales and a lackluster holiday season, something funny is happening — demand for personal computers is actually starting to show some signs of life.
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Industry watchers say PCs caught the fancy of shoppers over the Thanksgiving holiday weekend. Not only that, but there are also signs that sales started to stabilize even earlier. For the four weeks ended Oct. 28, PC unit sales at the retail level were down only 7% year-over-year, according to UBS Warburg. So what, you say? It sure beats the 41% year-over-year drop in September, or the 29% decline in August.
The Census Bureau's latest report on durable goods, released Thursday, held some uplifting news as well. New orders for computers and related products in October rose 18.4% sequentially. Overall, new orders for computers and electronic products (communications equipment, semiconductors and computers) rose $3.0 billion, or 10.3%, to $32.2 billion — the largest increase since May of last year. And just this week, heavyweights Dell Computer (NASDAQ:DELL - news) and Intel (NASDAQ:INTC - news) separately told audiences at Credit Suisse First Boston's technology conference that they felt increasingly confident about meeting fourth-quarter estimates.
Analysts say the increase in U.S. consumer sales is due in part to seasonal strength, consumers feeling a little flusher thanks to the stock market's post-September rise and the country's improving mood (the falling consumer confidence index notwithstanding). It also certainly helps that PCs are being eased out retailers' doors with plenty of holiday discounts and promotions.
The signs of PC health haven't gone unnoticed by the market. Since Oct. 1, the Dow Jones Computer Industry Index has climbed 35.6% to 425.98, outpacing the Standard & Poor's 500's 9.5% rise over the same period. The computer index remains 40% off this year's high of 710.18, reached on Jan. 31, but that's still an impressive gain by any standard.
These tidbits of good news sure are nice to hear — but are they a sign the PC industry has turned the corner? Not exactly. The fourth quarter, typically the strongest for consumer PC sales, is bound to show a bit of a seasonal bounce. Even though it will come as a relief if the three-month stretch isn't as disastrous as last year's fourth quarter (when U.S. unit sales fell 6% sequentially and 1.7% from the fourth quarter of 1999), sales are still well below year-earlier levels. According to IDC estimates, 10,672,558 PCs should be sold in the U.S. in the fourth quarter. That's a 2.4% improvement over the third quarter, when 10,420,952 units were sold, but still 13.2% less than sales of 12,296,578 in the final three months of 2000.
And even if the year-plus decline in PC sales is finally bottoming out, they could continue to bump along that bottom for some time. Some market watchers aren't expecting any real improvement until the second half of next year, when corporations start replacing older PCs with new ones. Others, like Roger Kay, IDC's director of client computing, don't think the industry will see much improvement until — yikes! — 2003.
What makes calling a turnaround so difficult is the host of problems afflicting the industry — problems it hasn't faced in years. For one, erosion of computer prices has bloodied some of the biggest players. Because the U.S. market is saturated, box makers have resorted to a price war to move their wares. Dell, of course, has been the biggest aggressor on this front, but anyone hoping to cling to some market share has had to follow suit. And all those holiday promotions will likely gut average selling prices (and profit margins along with them) even further.
Second, the global PC market has become messy. The U.S. has been sluggish for some time, but now the rest of the world is slowing down as well. In Western Europe, for example, third-quarter PC shipments are down 11% from a year earlier, according to Gartner Dataquest. The third quarter also marked the first year-over-year decline (6%) in PC shipments for the broader region of Europe, the Middle East and Africa. How the world's downturn will affect the industry's overall recovery remains a big question mark, says IDC's Kay.
There's also the tricky matter of demand. Sure, we're seeing a glimmer of improvement, but this is the strongest time of the year for PCs. After a flurry of holiday buying, consumers will be asking the same question: Why do they need a new computer in the first place? That is the ``biggest negative wildcard'' the industry continues to face, says Stephen Baker, an analyst at market research firm NPD Intelect. And the signs of improvement, he adds, are all relative: ``What we're doing is meeting expectations, but a new and reduced set of expectations. It's not the same business it was 12 or 15 months ago.''
It certainly isn't. |
