PC Technology Market

PC industry facing 'unprecedented' decline due to weak global economy

By Luann Lasalle, The Canadian Press


MONTREAL - The weak global economy is causing the worst decline ever in the personal computer industry, although demand for mini-notebooks will keep the market from "falling apart" in 2009, a new forecast says.

Market researcher Gartner Inc. said Monday that PC shipments will decline almost 12 per cent this year, with a total of 257 million to be shipped worldwide, the biggest drop in PC history.

"It's an unprecedented drop, much deeper than in 2001," Gartner research director George Shiffler said of the recession that hit the technology sector earlier this decade after the dot-com bubble burst.

He said mini-notebooks, also called netbooks that are smaller and less expensive than laptops, will prop up the PC market.

"They're big enough to keep the market from falling apart, but not big enough to keep it from going down," Shiffler said from San Jose, Calif.

Shipments worldwide of mini-notebooks are expected to total 21 million units in 2009, or about eight per cent of the total PC market, according to Gartner, an information technology research firm headquartered in Stamford, Conn.

Last year, 11.7 million mini-notebooks were shipped globally.

Netbooks are less powerful than current laptops and run between US$200 to US$500 and are designed for basic tasks like email and surfing the Internet.

Even still, even the most basic of today's personal computers have abilities that are far beyond what was available on the market when IBM Corp. brought out its original Personal Computer in 1981.

IBM's machine, the first to use an operating system from Microsoft, essentially thrust computers for individual users into the business world and, in the process, broadened the appeal for computing beyond the hobby and education markets pioneered by Apple, Commodore and Tandy-Radio Shack.

The PC is now considered a necessary tool for businesses and student, and a source of entertainment for many others, but many markets have long ago become saturated.

The current drop in demand for PCs will come from both emerging and mature markets worldwide, Shiffler said, adding that consumers and businesses will take longer to replace PCs in the economic downturn.

"We do think that going forward the fact that the global economy is continuing to deteriorate is going to depress demand," he said. "I don't see things really get kind of cooking, as it were, until the first half of next year."

Shiffler said the decline is causing a ripple effect on other companies that make PC hardware and software and is tough on computer chip makers and on makers of chip equipment.

Gartner's report follows thousands of job cuts announced by Microsoft Corp. (Nasdaq:MSFT), Intel Corp. (Nasdaq:INTC) and other companies that depend on sales of PC hardware and software.

Dell Inc. (Nasdaq:DELL), the second-largest computer maker behind Hewlett -Packard Co. (NYSE:HPQ), has announced it plans to cut US$4 billion in annual costs by the end of its 2011 financial year, $1 billion more than previously planned. It said the rising popularity of netbooks pushed revenue from consumers down seven per cent.

Shiffler said the coming release of Microsoft's Windows 7 operating system, a successor to Vista, could help the computer industry rebound.

"Depending when Windows 7 gets released, we're probably talking the big effects showing up a year later which would put it toward the end of 2010."

Analyst Darin Stahl said the "mom and pop shops, the PC support folks, the geek squads of the world" will benefit from the PC industry's decline.

"The only winners in this space are going to be the second-hand, used computing market for both enterprise and consumers," said Stahl, lead analyst at Info-Tech Research Group in London, Ont.

"I think those guys or those businesses are going to see a bit of an uptick as people hold on to this equipment a little longer," Stahl said.

Stock analyst Nick Agostino said even incentives may not even get consumers to replace their computers sooner.

"To me, it boils down to necessity," said Agostino of Toronto-based Research Capital Corp.

"If the one that you have at home is still adequate, that's not necessarily wise spending in these economic times. On the other hand, if you've got zero PC or if that thing is beyond repair and is just busted and you need that PC, then the incentive is just the added bonus."

When the economy turns around, there will be a pent-up demand for PCs and suddenly people will begin buying them again, he said.
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