PC makers face up to tough times

The warnings are in.

Intel Corp., Gateway Inc. and Apple Computer Corp. led the list of companies issuing disheartening notes about the PC’s apparent decline. All three of these vendors this past two weeks said laggard desktop and notebook markets have their upcoming financials looking less than spectacular.

Analysts seem happy to chime in with their forecasts of a fourth quarter slowdown in PC sales. International Data Corp. (IDC) this week predicted a two- to three- quarter correction may be on the horizon. With sentiments like these in the air and chip makers like National Semiconductor Corp and Motorola Inc moaning over a depressed market, the immediate future looks grim for the high tech world’s most famous machine.

The same analysts that warn of the PC’s short-term decline, however, assure the industry that the desktop doldrums will likely not last for too long. Industry pundits point to the stock market’s volubility and cycles in market demand as reasons for both the PC’s slump and its eventual return.

“It is like the party is over,” said Roger Kay, manager of desktop PC hardware at IDC. “It is this sobering moment where people are taking stock of where we are.”

Kay attributes a large part of sagging PC sales to the stock market’s slide. He urged that consumer purchases fall first when the economy slows due to a depressed overall outlook. For this reason, vendors like Gateway and Apple with a heavy dependence on consumer markets feel the initial brunt of market woes.

Kay said consumers are taking a look at their stock portfolios and 401k retirement plans and concluding that the money really is not there to warrant a PC upgrade. While a portion of the population does desire the ever-increasing processing power of new machines, many users seem satisfied with what their current machines can offer, he said.

With PCs still carrying a significant price-tag, users now seem more apt to purchase Internet appliances, as well as digital cameras, MP3 devices, Web-enabled smart phones and PDAs (personal digital assistants). These devices give users access to many of their favorite applications and do not burden their wallets quite as much.

Douglas Tuttle, a partner with DeLoitte Consulting LLC in the global technology practice, sees these emerging devices as a major threat to the PCs continued dominance.

“What we are seeing is that we are definitely moving to a post-PC world,” he said. “We are seeing an explosion of alternative devices. What is going to happen is that the PC is going to become more like a server in your house. With the advent of connectivity protocols like Bluetooth, you will have PCs more in the background.”

Tuttle contends that the current slow down in the PC market stems from consumers making the first moves away from PCs to these devices. He adds that the corporate markets will follow closely behind as adoption rates for Internet appliances and handheld computers rise.

For Tuttle, consumers are happy to buy Internet peripherals because the devices allow them to check their e-mail, stock quotes, news and do some surfing on the Web. While people traditionally turned to computers for computation or spreadsheet help, users now seem more inclined to view PCs as a communication device. Internet appliances not only come at a lower cost but also serve these communication needs well, Tuttle said.

He adds that the chip makers should not run scared just yet. Even though chips for these Internet devices will cost lees than those for PCs, he believes the variety of devices and the high number of units sold will make it worth the chip makers’ while to pursue these markets with the same vigor they showed in the PC’s heyday.

Kevin Knox, research director at Gartner Group Inc., said he doubted how much of an impact Internet appliance sales are having on PC markets, but said the slowing economy has taken its toll.

For Knox one of the most important factors in the fall in PC sales stems for the lasting presence of the Year 2000 computer issue. Many corporate and consumer users upgraded their machines to prepare for the supposedly imminent disaster, and don’t need to upgrade their machines again this soon. Additionally, users have not jumped at Microsoft Corp.’s recently launched Windows 2000 operating system at the rates some had predicted, according to Knox. With plenty of processing speed and an adequate OS in place, users simply do not need a new PC right now, he said.

Knox urged the industry to shun the death-of-the-PC hype. Things like the Y2K fallout and slow adoption of Windows 2000 are cyclical factors that will likely have come full circle in a few months time and will drive PC sales higher once more.

“This is kind of a hiccup thing,” Knox said. “I look to places like China and some other developing countries to pick up PC sales.”

Knox said plenty of opportunities exist for vendors to continue hawking their PC wares. While the North American market appears saturated, falling PC costs will likely open up large overseas markets for PC and chip makers alike to capitalize on.

Even though PC sales seem to have hit a low spot, PC makers still show market growth that would make many brick and mortars envious. Continuing these good times, however, looks to be a challenge. While cyclical trends in the market may bring PC sales higher once again, the influx of new technologies is set to challenge the venerable PC in the road ahead.

IDC is owned by International Data Group Inc., the parent company of IDG News Service. IDC, in Framingham, Mass., can be reached http://www.idc.com. Gartner, in Stamford, Conn. can be reached at http://www.gartner.com/. Deloitte, based in New York, can be reached at http://www.dc.com/.