January 19, 2001 3:30 PM PST

Studies paint dismal picture of PC sales

Dataquest and IDC are heaping salt on festering wounds.

The market researchers on Friday released preliminary PC shipment data for the fourth quarter of 2000 and the full year. For a PC industry battered by sagging sales and poor profits--this week from Apple Computer, Gateway and Intel--the reports only add to the woes.

IDC reported only 0.3 percent year-over-year growth in fourth-quarter U.S. PC shipments, which were down 3.6 percent from the third quarter.

For a market used to double-digit annual growth, "these numbers are a dismal forecast," said IDC analyst Roger Kay. "This is the worst it's been in the history of the industry."

Dataquest put U.S. shipment growth at 6.4 percent and 10.1 percent worldwide compared with the fourth quarter of 1999. For the year, the PC market grew 10.3 percent in the United States and 14.5 percent worldwide, buoyed by strong demand in Asia, according to Dataquest.

Dataquest analyst Charles Smulders described the fourth quarter as "a major disappointment--significantly so." Dataquest six months ago had forecast fourth-quarter growth in the mid-teens and more recently 11 percent.

Harder times could still be ahead for battered PC makers, Kay warned.

"I'm not at all convinced we've seen the worst yet," he said. "If the economy stays soft in the U.S., consumers remain hesitant and businesses remain unconvinced about the benefits of upgrading, we could see more of this or even worse than this."

Leader smitten
Much of the PC sales story is yet to be told. The three market leaders--Compaq Computer, Dell Computer and Hewlett-Packard--have yet to disclose fourth-quarter earnings. Compaq's announcement is Tuesday, while Dell and HP don't disclose results until February.

Compaq, by far, took the roughest beating of the three leaders during the quarter. With only 4.2-percent year-over-year growth, Compaq fell to 13 percent worldwide market share from 13.6 percent, according to IDC. Dell closed the gap, climbing to 12 percent market share from 10 percent a year ago. HP, at 8 percent market share, saw its unit shipments rise 18.5 percent. IBM and Fujitsu Siemens rounded out the top five, with, respectively, 7.3 percent and 5.1 percent market share.

In the United States, Dell substantially widened its lead over Compaq. A year ago, the two companies were locked in a dead heat, with Dell at 16.9 percent market share compared with Compaq's 16.2 percent, according to IDC. But during the fourth quarter, with 32.5 percent growth in unit shipments, Dell increased its domestic market share to 22.3 percent. Compaq, by contrast, saw unit shipments decline 5.3 percent as its market share dropped to 15.3 percent.

"Compaq took a hit in consumer (sales), which really hurt during the fourth quarter," Kay said.

HP took the No. 3 spot, according to IDC, with 12.4 percent U.S. market share, buoyed from 10.3 percent a year earlier. Gateway followed with 8.6 percent share, and IBM rounded out the top five with 5.9 percent market share.

Dataquest reported similar trends. Worldwide, the market researcher put Compaq in the No. 1 position with 12.4-percent share, down from 13.5 percent. Dell gained slightly, up to 11.3 percent market share from 11.1 percent a year earlier. But Dell unit shipments grew a whopping 40.8 percent compared with Compaq's 1.5 percent growth. HP took the No. 3 spot with 7.7 percent share, followed by IBM at 7.1 percent and NEC at 4.1 percent.

In the United States, Dataquest also showed a wide gulf between Dell and Compaq. Dell easily lead Compaq with 20.4-percent share compared with 13.9 percent for Compaq. Dell's U.S. PC shipments rose 37.7 percent, while Compaq's fell 8.7 percent. Third-ranked HP, with 11.7-percent share, saw unit shipments go up 20.7 percent. Gateway followed, with 8.1 percent and a unit shipments drop of 7.1 percent. IBM rounded out the top five with 5.6-percent share.

Assessing damage
Dataquest, IDC and PC makers are still struggling to understand the near collapse of U.S. PC sales during the fourth quarter.

"Nobody really saw this coming," Kay said. "It hit hard and really fast, pretty much in late November and early December."

Part of the problem is a sudden shift from a growth market to a mature--or "saturated"--market, with an estimated 53 percent of U.S. households owning PCs. That, coupled with a slowing economy, socked the consumer PC market just as holiday sales would normally have begun.

"As saturation takes place, the market is more susceptible to economic changes," Smulders said.

Apple, Compaq and Gateway took the early brunt of the slowdown, with all three companies dealing with mounting inventory. Apple's problems affected the whole industry, Smulders said.

Dataquest found faltering Apple computer shipments--down 50 percent in the United States and 40 percent worldwide--shaved two points off U.S. fourth-quarter PC growth and one point worldwide. But the market researcher tracks shipments going to dealers and not necessarily those sold. Because Apple started the quarter with about 11 weeks of inventory, the company shipped less systems as it cleared out the backlog.

Smulders said that doesn't matter. "Without the inventory overhang from the third quarter, their sales in vs. sales out would not be that dissimilar," he said. "It wouldn't have made a difference."

Apple's fourth-quarter sales collapse, coupled with an 8.8-percent year-over-year decline by Gateway, might lead some people to think only the consumer market slowed during the fourth quarter. But Smulders warned this is not the case.

"We've seen evidence of slowing sales in both the commercial and consumer markets," he emphasized.

He also noted some companies still managed to show solid gains in the quarter, regardless of position in consumer vs. commercial market. Dell and HP with, respectively, 40.8 percent and nearly 19 percent year-over-year growth, soundly beat competitors.

2000, 2001
For the full year, Compaq claimed the top spot in worldwide PC shipments, with 12.8 percent market share, down from 13.5 percent in 1999. Dell followed, with 10.8 percent share, up from 9.7 percent a year earlier. HP took the No. 3 spot with 7.6 percent market share, up from 6.5 percent in 1999. IBM dropped to 6.8 percent from 7.9 percent, falling to No.4. NEC pulled up the rear, with 4.3 percent market share, down from 5.1 percent a year earlier.

In the United States, Dell easily beat Compaq for the year with 19.1 percent share compared with 15.4 percent. In 1999, Dell narrowly led Compaq, 16.2 percent to 16.1 percent. HP, with 11.4 percent market share, posted the strongest growth: 43.2 percent. Gateway and IBM rounded out the top five with, respectively, with 8.6 percent and 5.4 percent shares.

Looking ahead, both Kay and Smulders warned PC makers would have to shift gears to remain profitable.

"Softness in the consumer and commercial segments clearly affected the mature markets the most," Kay said.

Smulders emphasized the future is about marketing and perspective.

"Going into 2001, we have this ongoing issue of saturation in major segments of the U.S. market and in some segments of the European market," he said. PC makers must now shift their marketing strategies for a "replacement vs. a growth market," Smulders added. "This means knowing more about their customers and working closer with their customers to anticipate their replacement cycle."

 

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