Shipments Aside, It Aint Easy Being in PCs

PC unit shipments will continue to increase at double-digit rates, but price cuts will hurt revenues, analysts say.

The worldwide PC market continues to chug along, but PC makers will have to make do with less revenue to keep growing, analysts said.

Gartner of Stamford, Conn., on Sept 15 said that worldwide PC unit shipments are expected to reach 233.7 million in 2006, an increase of 10.5 percent from 2005.

IDC, based in Framingham, Mass., said on Sept. 14 that shipments would reach 229.7, a growth rate of 10.5 percent. The firms, which update their forecasts throughout the year, arrive at slightly different numbers due to different counting methodologies.

But both Gartner and IDC agree that growth in PC unit shipments will continue. But rising unit shipments alone wont make life any easier for PC makers.

Growth, particularly in more mature markets such as North America, will come mainly at the hands of price cuts, Gartner said.

Those cuts will, in turn, reduce the amount of revenue generated by the worldwide PC market in 2006. Even with the increases in unit shipments, PC revenue is expected to decline 2.5 percent to $198.3 billion in 2006, Gartner said in a statement.

"Unit growth will continue to be price-driven for the next several quarters as PC replacement activity wanes and the battle between Intel and AMD escalates," George Shiffler, research director for Gartners Client Platforms research program, said in a statement.

"Steeper PC price declines will spur unit growth in mature markets like the United States over the near term, but growth will eventually slow to mid-single digits in these markets as PC replacements fade and saturation becomes more problematic."

PC makers were heavily discounting bid prices for their larger customers. Meanwhile, PC makers such as Gateway and Dell have moved to simplify the way they offer PCs direct to their customers.

Gateway, for one, has begun selling more fully-configured desktops and notebooks direct. Dell pledged to get rid of rebates.

The new forecasts by each firm are slightly lower than those made earlier this year. In June 2006, IDC forecast unit shipments of 230.2 million, an increase of 10.8 percent over 2005. Gartner previously predicted unit shipments of 234.5 million, a 10.7 percent increase over 2005, in March 2006.

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The pattern is likely to repeat in coming years, IDC said, with low-double-digit unit shipment growth rates expected in 2007 and 2008.

But Gartner said it believes growth will shift toward emerging markets, while mature market growth rates dwindle.

"Steeper price declines will also drive faster growth in emerging markets," Mikako Kitagawa, an analyst with Gartners Client Platforms research program, said in a statement.

"Growth should be more sustainable in these markets due to low penetration, expanding economies and a growing number of PC ownership initiatives. Emerging markets are expected to post solid double-digit growth during the next two years."

However, for 2006, there are still some uncertainties, particularly when it comes to the fourth-quarter consumer PC market.

The impact of the January 2007 release of Microsofts Windows Vista operating system is difficult to judge. Microsoft and PC makers have not yet said what their plans, if any, will be to offer PC buyers Vista upgrades. Meanwhile, without its presence, PC makers may be forced to cut prices even more to stimulate demand.

For the time being, PCs will see new competition from other types of electronic devices, particularly lower-priced LCD TVs, analysts have said.

"The battle between PCs and LCD TVs in particular is likely to be especially intense over the holiday season given that LCD TVs will almost certainly be backed by aggressive holiday marketing and even lower prices," Shiffler said in a statement.

Ultimately Vistas release could stimulate additional unit shipment growth. But Gartner said in its statement that it remains "skeptical of Vistas impact."

IDC does see steady growth in 2007 and 2008, predicting unit shipment growth of about 12 percent for each of the two years. The firm believes that PC unit shipments will total 257.4 in 2007 and rise to 287.8 in 2008, it said in a statement.

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