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Wednesday, Sep 25, 2002

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Touching the lows, for now

Krishnan Thiagarajan

Th PC industry is showing signs of a slowdown and analysts have lowered sales projections but there's room for hope in the medium term.

THE growth of the personal computer (PC) industry worldwide is beginning to show signs of slowing down. As the confidence in the resurgence of the US economy continues to remain shaky, it is becoming clear that the replacement demand for PCs is unlikely to pick up during the course of the year. In a reiteration of this trend, the technology and market research company, International Data Corporation (or IDC), has lowered the projections of worldwide PC sales in the year 2002 and 2003.

According to IDC, the PC shipments are slated to reach 135.5 million, recording a growth of 1.1 per cent in the year 2002 vis-a-vis a projected growth of 4.7 per cent in June this year. Similarly, IDC also revised the forecasts for PC shipments downwards to 8.4 per cent in 2003 from 11.1 per cent projected earlier this year.

The IDC research is a glaring admission that the signs of recovery in the April-June quarter have proved to be an ephemeral one. The researchers claimed that both corporate and consumer spending on PCs continued to be sluggish in the US, Europe and Japan and was unlikely to stage a recovery before the middle of the year 2003.

Accustomed to double-digit growth, the PC industry has been passing through troubled times lately.

The year 2001 happened to be only the second time in PC history (the first one was in 1985), in which the PC sales actually suffered a decline. Obviously, the low single-digit growth for PCs (at 1.1 per cent) in 2002 is a cause for concern for the industry.

Amidst this gloom, the segments which are holding up strongly are the government and small business, but by themselves they are not likely to neutralise the lower-than-expected purchases of PCs by consumers in the coming holiday season.

Room for hope

Although the near-term trends for the PC market is gloomy, the medium-term market appears to be fairly strong. For that matter, the Gartner group, while announcing the shipment of the billionth PC in April this year, made a startling forecast that it will take the industry only five to six years to sell the next billion PCs. This forecast is predicated on the fact that the broadband markets will take off in the US and since Internet access is the key driver, the usage of PCs for Internet access may trigger the next round of PC upgrade cycle and multiple PC acquisitions.

Secondly, the PC has got a new lease of life as the major challenge posed to the PC by other information appliances such as the mobile phone, the PDA (personal digital assistant), and other smart phone variants has receded in the wake of the US and European economic slowdown.

Safe strategies

If PCs have to retain their pre-eminence, the industry has to get two of its key strategies in place. The future growth of the PC industry is likely to be dictated by the developing markets in the Asia-Pacific region. While the growth potential from this region is huge, it will hinge upon the ability of the PC industry to review the present pricing structure of PCs.

Unless the pricing structure of PCs is aligned in line with the disposable income of consumers in the Asia-Pacific region, the potential for growth from these developing markets may not be fully realised.

Secondly, even in the developed markets, the small business and consumer market is still a significant untapped segment.

But to target this segment, both in the developed and developing markets, the PC industry has to design and develop friendlier PCs. Even though the price-performance characteristics of PCs have improved over the past decade or so, the usage of PCs has not been made friendly enough to attract the home users.

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