The death of PC ASPs is 'exaggerated' 8 March, 2009 By Steve Wexler

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According to Charles King, principal analyst, Pund-IT, Inc., Michelle Warren, president of MW Research & Consulting, Rob Enderle, Enderle Group, and Warren Shiau, lead analyst, IT Research, The Strategic Counsel, the jury's still out on where the PC industry is going. Warren said the falling prices, shrinking ASPs, and the likelihood that neither will rise are not surprising, but she was surprised by the "alarmist tone".

"Prices have been dropping for years. Vendors and VARs have known this and been struggling for some time on how to make money. Making money and surviving are critical elements," she said.

The current state of the PC industry has a lot to do with Moore's Law and the incredible pace of innovation we've been getting from the chip/processor companies, noted Shiau. "Their objective has been to reduce PC/mobile device ASPs to the point that they have massive volume everywhere, i.e. computers and devices become mass-market, ultra-high-volume consumer goods. This is why Intel, for example has always put just as much effort into its manufacturing and process prowess as it does into chip/processor design."

He argues that the issue right now is that prices are falling at a rate that is too fast for the hardware manufacturers to adjust to, without enough of a pick-up in volume to maintain overall profitability levels. They've had to constantly adjust their operations to lower margin/higher volume every year for at least the past 7-9 years, but right now the volume part of the equation isn't really coming in where they need it to. "Hence the fall in absolute profitability levels."

King largely agrees with Gottheil about the issues currently driving ASP but he finds his comparisons of the current situation to the gasoline price shocks of 2008 and the 1970s somewhat curious. He said in the '70s, conventional wisdom held that OPEC's shenanigans had ushered in a new era of demand for smaller more fuel-efficient cars. But that 'era' ended by the early '80s, with the end of inflated gas prices. "A decade or so later, consumers were well on their way back to the big car/SUV mentality that made last year's gas prices so incredibly painful and helped stick a fork into the Big Three."

The PC market is different, said King. Collapsing sales have taken a huge bite out of a low-margin market that requires high sales volumes to survive/thrive. At the same time, while netbooks have allowed PC makers some respite, they've also served to undercut the value proposition of traditional PCs and notebooks.

Enderle is also in agreement with TBR's analyst. "In the tech market in general and the PC market in particular, once ASPs go down they virtually never go up. Netbooks took ASPs down sharply but had netbooks not existed volumes would have cratered because there was nothing else driving people to PCs in the 4th quarter. While many are looking at Netbooks as the problem they actually helped the bottom line (they are reasonably profitable) and certainly allowed the market to hold volumes."

The market has moved to a new high value model and it's now up to the vendors to adopt, said Enderle. "The new model for PCs is becoming much more similar to the cell phone model over time and the folks that get there first will likely get the best benefit. Had the market tried to hold price, the outcome would have been vastly more dire."