Framingham (Massachusetts) - Yesterday's stellar IDC report of double-digit year-to-year growth in PC sales may speak of a healthy and mature market, both in the US and worldwide. But a mature market is susceptible to economic forces; and inflationary pressures, plummeting consumer confidence, and reductions in discretionary spending in the wake of rising oil prices may deliver a jolt to the PC market, along with every other mature market, IDC research manager for personal computing David Daoud told TG Daily.
As we reported here yesterday, IDC analysts Loren Loverde and Richard Shim reported a strong surge in PC shipment growth in the third quarter of this year versus the same period in 2004. Worldwide, shipments of personal computers grew at an annual rate of 17.1 percent, which was 4.2 percent above IDC estimates last August; shipments in the US market grew at an 11 percent rate.
"What surprised me is the health of the PC market in general," said Daoud, though even the growth itself could be a pointer toward a worrisome trend: The personal computer market is now a quarter-century old, so the factors that have historically immunized the market from negative economic trends may no longer apply, as the growth trend appears to have been in response to the more stable, growing economy prior to this year's hurricane crises.
Yesterday, in comments made to a Japanese business association, US Federal Reserve Chairman Alan Greenspan characterized the sharp rise in oil prices, catalyzed by the hurricanes that pummeled the Gulf of Mexico and suspended oil production, as "an accident waiting to happen." Greenspan, whose own impending retirement has been interpreted as an portent of bad tidings, was further quoted as saying, "Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on." His comments - as they often do - sent some shock waves through the US stock markets, which continue to trade lower this morning.
Referring to Greenspan's comments, as well as recent inflation and consumer sentiment figures, Daoud said it would be difficult for the PC market to sustain its double-digit growth rate going forward, "particularly as the fundamentals of the economy are not as solid as we would want them to be." As consumers shift their spending away from discretionary items and toward heating their homes and fueling their cars, there's reason, he said, to couple optimism for the apparent opportunities in the PC market, with a little worry.
Historically, Daoud acknowledged, PCs were the bellwether emerging industry, surviving and thriving through the recession of the late 1980s, "driven by corporate needs to improve their productivity...The only time the PC market went south," he said, "was in 2000 to 2002; and that was the result, clearly, of the pre-Y2K and the Internet era, when people spent so much on computers that the market - in the US at least - had become completely saturated.
The PC market, continued Daoud, "hasn't been a mature market, to [which we could] apply some of the basic econometrics, but now it is...Is it going to impact? Yes, I think it will be impacted. The question is, to what extent?" Personal computers have evolved from accessories into commodities, "and like any commodity product," he said, "it becomes subject to consumer, household budgets, and it is impacted by consumer behavior."
The economic downturn, whether it becomes a bump or a dip, comes at the same time that the PC market is midway through a critical transition period, stated Daoud, away from desktop-style architecture and more toward mobile designs that are suitable for desktops. "I think we are in a situation where the days of the desktops are being counted right now," he told TG Daily. "We're reaching the end of the desktops as we know it, and we're moving into a new era of mobility, [where] people are going to be shifting - and they have been already - towards laptops."
As we reported here this morning, Intel reported in a conference call late yesterday afternoon that revenues from mobile processors now account for 23 percent of Intel's business, growing in some segments now at a per annum rate of 82 percent. "It's no surprise why more and more companies have shifted their R&D research, product innovation, towards everything that's mobile," said Daoud.
There will also continue to be bright spots in niche markets for PCs that could help the industry ride out the downturn. For instance, the market for digital media center systems such as the one Sony introduced yesterday, may continue to show growth. Also, Daoud pointed to an emerging market in blade PCs, which use very small (3U) form factors relative to desktop PCs, and can be stored in clusters alongside one another, for use in call centers and multi-cubicle offices. The educational and instructional segments of the market may continue to show growth, he added. Some historical data has shown demand for instructional systems and content - especially for retraining - rising in proportion to drops in consumer sentiment. But the federal government itself will continue to be the weak link in the chain, he said, as tightened budgets further restrict its purchasing capability.
Yet alongside these continued growth segments and one almost guaranteed shrinkage segment, Daoud stated that the part of the market that gave birth to the PC industry is probably on its last legs. "The desktop as we know it - the desktop that's in your home, in your small office - certainly is going to start fading away over time," he told us.
The dominant players in desktop systems remain powerful, Daoud said, though are growing fewer in number, and are themselves shifting toward a more mobile focus. Dell remains a dominant player "because they do an excellent job in producing on-demand, built-to-order desktops at a very low cost for customers they know very well." HP is another dominant player because it's well entrenched in retail channels as well as commercial sales to businesses. Struggling for presence among them is Lenovo, which inherited IBM's pre-eminent ThinkPad series, and dubbed IBM's former desktop series ThinkCentre. Gateway is also attempting to leverage the power of another successful brand, with its absorption of eMachines.
"And that's really it," Daoud declared. "Besides that, who else? White-box guys. Unknown entities. Very local guys." A few exceptions: Sony, whose VAIO brand is fading in the desktop segment; followed by Toshiba and Fujitsu, which are entirely or predominantly mobile worldwide; followed by one up-and-comer called Averatec.
The shift in focus toward mobility is no surprise to Daoud. "This didn't come out of nowhere. It came from a confluence of factors," he said, including the emergence of WiFi, the shrinking difference in price between desktop and mobile units, and the improving quality of game play on mobile systems. "It's a no-brainer."
