PC market returns to double-digit growth: IDC 19 April, 2007 By Liam Lahey

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Year-on-year growth improved from the fourth quarter in all regions with Europe and Asia/Pacific (excluding Japan) showing the biggest improvements versus forecasts. Japan recovered from a double-digit decline in the fourth quarter, but was the only region with declining volume as the U.S. moved back into growth mode. Portable PC adoption remained the primary driver with a strong consumer component.

Worldwide PC shipment growth was up from the single-digit growth experienced over the previous three quarters and was ahead of forecast growth of 8.5 per cent. The rise in growth primarily reflects the strength of portable and consumer demand, rather than stronger commercial growth, IDC said.

The availability of the Microsoft Vista OS probably moved some volume from 4Q06 to 1Q07, although IDC said that peak growth in 2004 and 2005 had more to do with slower growth at the end of 2006 than users waiting for the new operating system -- particularly as vendors such as HP, Acer, Toshiba, and Apple saw strong retail and portable PC growth through the end of the year.

"Indeed the sale of portable PCs continue to grow at double-digit rates, including in mature markets," said David Daoud, manager of personal computing and PC tracker programs for Framingham, Mass.-based IDC. "Consumers continue to purchase and within the commercial sector there were mixed results comparing large enterprise accounts and small to mid-sized businesses. In all, the commercial sector remained sluggish."

The U.S. and Japan didn't grow much in the first quarter, but solid gains elsewhere and a boost from the Vista OS brought the industry back to double-digit growth. The key market drivers -- portable adoption and consumer demand -- continue at a healthy clip, and commercial replacements should contribute more in coming quarters. IDC said growth is likely to stay in double-digits over the next two years although it will be concentrated in portables and international markets.

"As expected, the U.S. market saw a low single-digit year-on-year increase and a typical seasonal decline from Q4 to Q1. Contracting desktop demand and strong notebook activity remained the dominant trends," Daoud said. "The shift to portables and related changes in various segments will force vendors to re-evaluate their channels and go-to-market strategies to adapt to the new market dynamics. Some of this restructuring has already begun, but it is likely to accelerate as Dell evaluates recent losses and vendors such as Acer and Lenovo change their strategy for the U.S. market."

The U.S. saw growth return to positive territory as HP made the most of consumer demand while Dell and Gateway continued to lose ground. Lenovo, which has struggled in the U.S. since taking over IBM's PC division, leveraged strong portable sales to grow shipments by 12 per cent. Dell remained the market leader, although its lead over HP has fallen from more than 12 per cent share through the first half of 2006 to less than three per cent this quarter.

"The strong results of HP and other vendors such as Acer, as well as the stabilization of Lenovo provide an early indication that the channels have been rather healthy," he continued. "All of the vendors that have established channel programs have apparently done well, judging by the increase in the volume of PCs they pushed in 1Q07.

"Therefore the problem in the commercial space may be more concentrated in the large business sector which uses the direct model and direct relation with the vendor. As regards to commercial demand outlook, there will be continued interest in mobility, sluggish demand for desktops this year, before refreshes begin next year with the start of Vista adoption. We are also watching how other form factors will evolve, including thin clients and blade PCs."

EMEA growth rose several points in 1Q07 on strong portables demand. Desktop volume remained roughly flat from a year ago, but continuing demand for portables across the region, and particularly in the consumer segment and in CEMA, boosted overall growth. Market leaders HP and Acer continued to gain share with Toshiba, Packard Bell, and Asus also registering strong growth. Dell continued to suffer from slower corporate demand and retail competition in the consumer space and saw volume fall marginally from a year ago while Fujitsu Siemens and Lenovo shipments increased but trailed the market.

In terms of vendors, IDC stated HP continued to grow at a rapid pace by leveraging its consumer and portables business and capitalizing on Dell's disarray.

The company improved on a strong fourth quarter performance with growth of more than 28 per cent in the first quarter, expanding its share of global shipments to 19.1 per cent and widening its lead against rival Dell to 3.9 points. The strong showing for HP included growth of more than 25 per cent in the U.S., representing substantial share gains domestically, as well as nearly 30 per cent growth abroad.

Dell continued to struggle with a slow U.S. market and internal restructuring. A focus on the slower growing commercial market and a strategy of not chasing share at the expense of profitability while facing aggressive competition from HP and other competitors has reduced growth dramatically. Dell shipments declined by more than 14 per cent Stateside and grew by just over one per cent internationally. As a result, overall shipments declined by 6.9 per cent year-on-year and international shipments rose to 52 per cent of volume.

Lenovo had a very solid quarter, boosting growth in the U.S. to more than 12 per cent from seven per cent in 4Q06 and growth in Europe to 14 per cent from 3 per cent in 4Q06. Asia/Pacific (excluding Japan), which continues to represent near 60 per cent of Lenovo shipments, also performed well with growth increasing from the second half of 2006 to nearly 24 per cent. Portables growth was the primary driver for Lenovo in the U.S. and abroad, but the company also managed to grow desktop volume -- even in the U.S. where volume was projected to decline by eight per cent and other vendors continue to struggle.

Acer was boosted by a surge in EMEA during 1Q07. EMEA represented more than 60 per cent of Acer shipments in the first quarter with growth above 50 per cent, up from more than 30 per cent in the second half of 2006. The company also continued a rapid expansion of its Americas business. The strong growth boosted Acer to a statistical tie with Lenovo for third rank in worldwide shipments.

Acer in particular, which has put enormous emphasis on the channels in the U.S., has been extremely aggressive, Daoud said. The proper use of the channels to position itself in the small business market appears to be paying off and now the company is working to move up into the mid-market.

Meanwhile, Toshiba saw growth slow to low teens from more than 20 per cent in the second half of last year. Growth remained strong in EMEA and the Americas, but slowed in Japan and the rest of Asia/Pacific as a surge in shipments during 2006 made year-on-year comparisons more difficult.

Lastly, Gateway struggled with a difficult year-on-year comparison in addition to rising competition and a slow market in the U.S. Gateway shipments increased by roughly 45 per cent in 1Q06, compared with growth of 12 per cent in 4Q05 and 17 per cent in 2Q06.

"There will be growth in mature markets as well, not as much as we've seen in the past," Daoud noted. "Consumers and businesses have surely matured, which means serving them will require a new approach and a better understanding of their needs and user experience. It is clear that the PC as we know it, in particular the desktop, will have to evolve in the future to address the needs of users, so it will no longer a market driven by vendors but users."

The channels and resellers in general will have to adjust and work with OEMs to determine what these needs are, he added. Outside of the mature markets, in so-called emerging economies, demand remains healthy because the installed base is relatively small, the middle classes are expanding, disposable incomes are growing and businesses recognize the role of IT in terms of productivity growth and competitiveness.

"There's plenty of opportunities in emerging markets, but many of these markets are tough to penetrate," he said.