PC sales flat, but could perk up

The Outlook

Many yet to purchase that first computer, others their second or third

April 18, 1999|By Shanon D. Murray

COMPAQ Computer Corp. warned last week that first-quarter profit will be about half analysts' forecasts. Intel Corp., the world's No. 1 computer chip maker, said sales were less than expected and the second quarter isn't expected to pick up significantly. Dell Computer Corp. reported its weakest sales growth in two years. Is the demand for personal computers weakening? What effect do cheaper PCs have on the market? What are the growth opportunities in the industry?

Mark Bates

Product manager, PC Data, Reston, Va.

Major players in the past quarter have indicated lower earnings or lower revenue expectations. It shouldn't be a surprise. It's just more of a realization that we're at that point where PC sales have flattened.

This past month, however, sales are up 20 percent from the previous year. But, considering the cost of PCs has gone down, the dollar growth is definitely flat. There are market segments that are growing. The sub-$1,000 and sub-$600 markets are expanding tremendously.

Industry-wide, there's a bit of saturation. How many computers can one person own? There are people out there who haven't bought their first computer, primarily because the price point where they are willing to jump in hasn't happened yet.

But there are companies like Emachines that are focusing solely on the lowest price point, or $600 or less to spur growth among first-time buyers. For other companies, the plan is to focus on computer peripherals.

For example, Hewlett-Packard makes computers and printers. Sales for peripherals have not flattened. The demand for color printers and digital cameras is still growing. This all shows there are business opportunities out there.

Claude Hazan

Analyst, C. E. Unterberg Towbin, San Francisco

The death of the PC industry is grossly exaggerated. Forty percent of U.S. households have PCs. By the end of this year, that could be up to 55 percent.

That 15 percent is being driven by low cost. Certainly there is a monumental shift in the pricing of PCs. As a result, some companies are having trouble making money. So it's very clear companies see the need to complement their PC business with a fast-growing market.

Intel is now focusing on networking and servers. Dell is doing its online program in a joint effort with IBM to stretch its wings away from the PC.

PC sales are still growing, but the rate of growth certainly is tailing off. I expect PC unit growth to be 14 percent this year. The problem is revenue growth is expected to be in the single digits. The pricing pressure is causing the overall PC industry to grow a little slower.

In 1998, the buzzword was the sub-$1,000 machines. Now, Emachines are selling PCs for $399. Some companies are offering free PCs if consumers sign up for their Internet service. PCs are beginning to follow the cellular phone model where the price of the hardware is immaterial and the service is where the company is making the money.

The major companies are aware of what's going on. But it's happening so fast, it's tough for them to realign their strategy so quickly.

And, because they are having trouble keeping up, their profits are subsiding. This is one of the biggest hurdles these companies are having to face in more than a decade. And in the end, there will be a couple of winners and a couple of losers.

David J. Stremba

Principal analyst, Dataquest, San Jose, Calif.

The fourth quarter was so dramatic that it's making the first quarter look weak. We had a great fourth quarter with 28 percent sales growth in the home market. There definitely has been a sequential decline in first-quarter results. But the decline was expected. It's actually a return to a state of normalization for the industry.

It's not the end for the PC industry, but there is more of a challenge in terms of revenue growth. We're not overly optimistic in 1999 for revenue growth. We're expecting flat or single-digit growth. But that's an improvement over the negative revenue growth in 1998, when we saw a dramatic drop in the average selling prices of computers.

Companies now have to put more emphasis on sales of warranties, peripherals and things that go around the box as opposed to in the box itself.

Tim Mahon

Analyst, Volpe Brown Whelan, San Francisco

There are analysts out there declaring doom and gloom on the PC industry. I believe the industry is going through normal, seasonal issues. I'm expecting business to start picking up again in the second quarter. The PC industry as a whole is at the beginning of a nice strong growth period. With very aggressive pricing and normal seasonal patterns, I expect business to kick back in gear.

I expect to see multiple PC homes. One PC in the bedroom and another in the home office, especially for families with children. Instead of waiting in line to use the computer, we'll see more people owning two, three, four machines.

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