Financial turmoil equals slow, global PC growth 21 October, 2008 By Liam Lahey

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"The proliferation of low-cost portable PCs coincided perfectly with market conditions," said Jay Chou, research analyst with IDC's Worldwide Quarterly PC Tracker in Framingham, Mass. "As more low-cost models enter the fray, a new pecking order may emerge among vendors as the market leans toward notebooks with ever-declining ASPs [average selling prices]. What remains to be seen is how much cannibalization will occur, and the degree to which mounting economic pressures will stifle PC market growth over the next year."

"The difficult economic environment accelerated toward the end of the third quarter. The commercial segment has been constrained due to tight IT budgets, while back-to-school spending helped somewhat in maintaining momentum," said Doug Bell, research analyst, Personal Computing. "IDC expects the ongoing economic woes in the U.S. to further impact consumer and commercial PC spending during the holiday season."

As expected the third quarter was sluggish with performance further exacerbated by a flurry of bad economic news stateside. Among the bright spots, however, were the emergence of low-cost notebooks and some marginal back-to-school activities that helped to keep the quarter in positive territory. The competitive landscape has remained essentially unchanged, although Dell and Apple noticeably managed to outperform the market.

Given the state of the economy and the growth of low-cost portable computers, notebooks would surpass desktops globally in total shipments in early 2009, IDC said.

"From a U.S. perspective, we expect notebooks to surpass desktops in 3Q08. We plan on releasing our form factor data in a few weeks. In the U.S. . . . there is a fundamental shift to mobility," Bell said. "While mini notebooks are a surging PC category, it is still a small percentage of total notebooks in the US. We do anticipate continues growth in this area throughout 2012, but it should still remain under 5 percent of the total U.S. notebook market.

"It is a slightly different story in other parts of the world. The impact has been greater due to reasons such as a lower notebook base, and PC spending. Worldwide, we expect notebooks to surpass desktops in 2009."

Bell told eChannelLine as IDC processes its 3Q08 data and as it looks at future forecasts, the market research firm would definitely be watching GDP growth closely and how the economic turmoil affects the PC market.

"We do not expect a severe drop in growth, but a steady, mature market in the U.S.," he said. "4Q08 will be a good sign of how early 2009 should play out."

Meanwhile, continued buoyancy in the consumer notebook market supported another strong quarter in EMEA, as expected. Demand for mainstream notebooks remained robust in the back-to-school season while the proliferation of low-cost ultra portables and deals through Telco operators created additional momentum and boosted growth further. The gloomy economic confidence in several countries showed no sign of slowing consumer demand overall and the market also benefited from sustained demand in the business space. The financial crisis that hit Europe in October may lead to intensifying economic pressure over the coming months, but several factors inherent to the PC market across both Western Europe and CEMA regions will continue to act as growth drivers.

Ongoing economic pressures, which were being felt even before the recent financial crisis, kept the APeJ (Asia-Pacific excluding Japan) region slightly below forecasts this quarter. Still, growth remains in the double-digit range. Even if global economic uncertainty further erodes the region in future quarters, domestic demand in key markets like China may keep the momentum going.

In terms of vendors, IDC said HP continues to hold its position as the worldwide leader with annual growth of 14.9 percent. The recent downturn in the U.S. economy affected the company's overall performance both worldwide and in the U.S. HP's vast product offerings should help it to weather the current economic climate and enable it to grow as the market begins to recover.

Dell suffered a disappointing quarter in all regions except APeJ, where it grew 33.7 percent year over year. Despite positive growth in all regions except Japan, Dell trailed the overall market with 11.4 percent year-over-year growth. Dell's direct sales approach had a more immediate impact on its U.S. numbers compared with vendors leveraging non-direct methods. The silver lining is that Dell enjoyed a solid performance from its bourgeoning retail presence.

Acer has remained focused on emerging regions and portables, helping it to claim global shipments of more than 10 million units. Like other vendors, U.S. sales were down but the continued early embrace of ultra low-cost PCs helped Acer maintain strong growth in other regions around the world. Combined with Gateway, U.S. shipments declined -- 3.2 percent year over year while APeJ and other emerging markets maintained healthy gains. Data for Acer includes shipments for Gateway starting in Q407, and only Acer data for prior quarters. This reflects the legal status of the companies, which merged during 4Q07.

Lenovo struggled to gain traction as small business spending slowed. Its worldwide annual growth of 7.7 percent was helped by solid results from its home turf in APeJ as well as EMEA, both of which were closer to expectations compared to other regions.

Toshiba reported annual growth of 24 percent, less than its 2Q08 growth. Although its pace of growth dampened compared to last quarter, strong showings in EMEA, Japan, and APeJ helped Toshiba to offset limited growth in the U.S.