Economic Woes Hit PC Sales

The unsettled U.S. economy is hurting global PC sales growth, causing domestic shipments to slip for the first time in history, according to a revised forecast by an international market research firm.

IDC has almost halved its international growth forecast for 2001. The market research organization is projecting worldwide PC sales will grow 5.8 percent over 2000, instead of its earlier expectation of 10.3 growth. The biggest driver: a projected 17.3 percent plummet in sales to U.S. consumers.

But wait until next year, when the analysts expect a bounce back in U.S. sales and improvement overseas. IDC expects PC shipments in the United States to grow by 4.6 percent in 2002, with a worldwide increase of 12.2 percent.

Caught Off Guard

"I think the biggest impact is the economy. Pretty much the whole market was surprised about the economic softness at the end of last year," says Loren Loverde, director of IDC's Worldwide Quarterly PC Tracker. "We definitely felt it in the PC industry. We lowered our forecast at that time and thought we were being conservative."

Surprise! First quarter consumer sales were even worse, down 26.4 percent from a year ago.

"That's a major decline," Loverde says. "We do think that a big part is the economy, and consumers are sort of shell-shocked and conservative right now. They are far more optional purchasers than you find in the commercial segment. Consumers tend to be more flexible, because they have the option of just not purchasing it."

Besides expecting an upturn in 2002, IDC forecasts increased growth in 2003. The analysts estimate U.S. growth will be 14.2 percent in 2003 and that global shipments will rise 14.3 percent that year.

"Outside the U.S., we think there is much more low-hanging fruit and lower market penetration, so we expect higher growth rates, particularly Asia," Loverde says. "We think that this is a temporary cycle for the U.S."

Vendors Optimistic

Among the other optimists are Hector Ruiz, president of Advanced Micro Devices.

"No one can predict which quarter will be the bottom [for the global semiconductor market]. But the PC market has started stabilizing," Ruiz told Dow Jones at a press briefing in Tokyo on Wednesday. "By the end of this year, we'll see resumption of normal business [for the PC market]," he said.

PC sales leaders Dell, Gateway, and Compaq won't comment on the IDC forecast, but Dell claims the economic climate doesn't affect it as much as the competition. In the first three months of 2001, Dell says, its consumer shipments jumped 43 percent.

IDC ranked Dell number one in units sold (2.5 million) and market share (23.7 percent) in the first quarter. Compaq was runner-up with nearly 1.5 million units and a 13.9 percent share, followed by number-three Hewlett-Packard (1 million, 10.2 percent), number-four Gateway (923,067, 8.7 percent), and IBM (565,453, 5.3 percent).

Dell is offering some pretty aggressive discounts, and Gateway recently offered to match prices on some models.

"Customers don't care about rivalries between corporations--they care about getting the best value for their money," Ted Waitt, Gateway's cofounder and chief executive officer, said when the price guarantee was announced last week. "Our advertising says, 'You've got a friend in the business.' We think that in a time of economic uncertainty, this is what a friend would do."