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PC makers see sales rebounding

After three years of disappointment, personal computer makers are seeing a pickup in sales — helped in part by a move by consumers to the greater mobility of wireless notebook PCs. — By John W. Schoen
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It’s been a long, lean stretch for personal computer makers since the Y2K spending frenzy. But after three years of disappointment, PC makers are cautiously hopeful that they’re seeing a return to the traditional pickup in sales for the back-to-school and holiday shopping seasons. Aside from gradual improvement in the economic outlook, the long-awaited rebound in sales is getting a boost from consumers’ desire for greater mobility with wireless notebook PCs.

FOR THE LAST four years, sales of laptop computers have been gradually catching up with the more popular desktop models. In January 2000, for example, notebooks made up less than 25 percent of PC sales, according to NPD Group, a market research firm. But by May of this year, notebooks had overtaken desktops among consumers, accounting for more than 54 percent of the nearly $500 million in retail computer sales, according to NPD. (Desktops still lead notebooks in overall PC sales, where they still lead notebook sales among large corporate customers.)

And though notebooks, at an average price of about $1,300, are still pricier than desktops (about $600 more on average), the gap is narrowing. A new generation of wireless chips is also offering the freedom of mobility to PC users who until now have been chained to their desks, according to Stephen Smith, an industry analyst at NPD.

“It’s a pretty compelling reason to have a notebook,” he said. “You really can’t lug your desktop around on vacation or the Starbucks or even the deck. And PCs don’t just stay in the den anymore. They’re moving into the family room, they’re moving into the living room — people are voting online while they’re watching TV.”

Even as notebook prices have been falling, PC makers have been adding more features. Most now include features like high-capacity disk drives and CD burners that consumers have come to rely on with their desktops. Overall personal computer sales have also been helped by desktop PC consumers who are snapping up flat-panel, liquid-crystal display monitors, which are now outselling the bulkier cathode-ray tube models.

Investors will get a better idea of just how well PC sales are improving when industry leader Dell Computer reports its profits Wednesday after the bell. Analysts surveyed by Thomson Financial/First Call expect the company to post profits of 24 cents a share, up from 19 cents a year ago. Revenues are expected to rise to $9.8 billion from $8.5 billion

But Wall Street has already been encouraged by signs of strength in the PC market from comments made by chip-maker Intel and software giant Microsoft, who have already reported for the quarter. [MSNBC is a Microsoft-NBC joint venture.]

Among other things, PC makers are also getting a lift from sales in Asia, after the SARS outbreak earlier this year kept consumers home and many factories shut down. In addition to hurting sales, the slowdown also depressed inventories, which dealers are now rebuilding.

But stronger sales don’t necessarily mean stronger profits for personal computer makers, who continue to slug it out in a fierce price war as they battle to hold onto their piece of the PC pie.

“There’s no easing of the competitive pricing pressure right now in PC markets,” said Ali Irani, a PC industry analyst at CIBC World Markets Corp. “You have a very determined HP looking to price (its products) so it can gain market share.”

And after several years of squeezing component makers, some of those suppliers are saying “enough.”

“Component pricing is not dropping anywhere near as fast as a year ago,” said Eric Rothdeutsch, a PC analyst at Friedman, Billings, Ramsey.

Makers of memory chips, in fact, have recently pushed through some steep price increases — something they’ve been unable to do for years. The reason: With a pickup in demand, and production capacity tightening, the market is no longer glutted with chips.