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Lagging PC sales hint of slow '98
By Michael Kanellos
December 3, 1997, 5:45 p.m. PT
Despite go-go growth for the first ten months of the year, U.S. computer
sales tapered off last month--a deceleration that, combined with other
factors, may portend a slower 1998.
Although most of the evidence of a slowdown is anecdotal at this point,
technology executives and analysts say system sales and revenue were
below expectations for the past month. At the same time, inventories of
components and computer systems have grown while prices have dropped.
"It was a decent October and a good summer. Then, all of the sudden, in
November, they drop off...November is generally pretty strong," said
Doug Antone, chief operating officer at Ingram Micro, the world's
largest computer distributor. "It caught people by surprise."
While economic conditions in Asia have prompted some to predict slower
growth for this quarter and next year, revenue might be slumping for
more mundane reasons.
Customers, including corporate buyers, may be growing weary of the
constant upgrade cycle. Further, the constant drumbeat of publicity
surrounding price cuts has encouraged customers to take a more
wait-and-see approach to purchasing.
"A lot of [companies] we talked to who used to say 'I've got to have the
latest' are now saying, 'Our machines are fast enough,'" said Steve
Cohan, president of Entre Computer Systems, a reseller in Colorado.
"There is a definite slowdown for a number of reasons."
Computer analyst Ashok Kumar of Loewenbaum & Company portrayed the
situation in more dire terms: "Desktop price points are beginning to
crater. The only place for price stability is the enterprise [sector],
and God knows how long that can last."
Kumar added that other indications of a slowdown include flat notebook
sales for Dell Computer and growing component inventories. A number of
other sources have stated that Compaq's computer inventories have
increased in recent weeks.
Cohan said news of pending price cuts by chip giant Intel also likely
prompted slower sales. "Preannounced cuts kill sales. Why do you want to
buy a Pentium MMX [computer] when you can get a Pentium II at the same
price in a few months?"
Analysts have pointed out that the most recent processor upgrades have
not appreciably added to performance, which could be the reason for this
year's drastic price cuts on those systems. Consumers and corporations
have had less incentive to move from Pentium MMX chips to the Pentium
II.
Last month, Drew Peck, an analyst with Cowen & Company, said the motive
behind the drastic Pentium II price cuts--both those that have occurred
and those coming in February--owe to the fact that sales of systems
based on this processor remain below Intel's internal expectations.
"The Pentium II does not dramatically improve the performance for
consumers," he said, "so they are forced to use price as a lever," Peck
told CNET's NEWS.COM last month.
Prices on Pentium II systems have come down fairly dramatically this
year, faster than other high-end Intel-based systems in the past.
Although Intel's top-of-the-line chip was introduced this spring, it can
be found in systems costing as little as $1,599 and in many that cost
under $2,000.
In addition to these, another factor that may cause revenues to flatten
could come into play in 1998. The sub-$1,000 computer, which has spread
like wildfire in the consumer market, may start to make greater inroads
into the corporate world.
"There will be a little more challenging market for all of us as these
price points find their waterline," Antone said. "Buyers will still want
a $2,000 PC with more bells and whistles, but there might me downward
pressure [on costs]."
Hewlett-Packard released sub-$1,000 computers for the corporate market
just this week. Cyrix has already released a reference platform for $500
desktops based around its MediaGX processor. Intel is also rumored to be
moving in this direction with a design announced today for "dumb"
terminal computers that could cost only $500 and is rumored to be
working on a new design for sub-$1,000 PCs.
"If a computer user can have 200 MHz at $1,000, why spent $2,000?" Cohan
asked.
Still, not all is doom and gloom, according to Roger Kay, computer
analyst at International Data Corporation. The strength of the U.S.
economy, as well as slight resurgence in Europe, will lead to overall
sales growth of close to 17 percent this year, he said.
"Yes, demand seems to be slowing down, but I'm still predicting a good
fourth quarter, especially on the consumer side," he said.
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