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Slowing sales of PCs seen as peril to profits

By Crayton Harrison
The Dallas Morning News

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Although the moderating sales growth is probably a function of economics, industry experts worry that PC makers have fallen into a rut, putting out increasingly indistinguishable products and doing little to market them effectively.

In fact, computer companies still seem to be competing mostly on price, a trend that could benefit consumers but further threatens the PC makers' profits.

One analyst even questioned last week whether industry leader Dell could expect to keep up its strong growth rates.

PC sales will grow to 176.5 million in 2004, a 14 percent increase over last year, when shipments grew 11.3 percent, research company IDC said last month. But the rate is dropping sharply in the second half of the year and will slow to 10.5 percent in 2005.

The initial onrush of demand that comes with an economic recovery has largely been satisfied, giving way to a more incremental pattern of growth, said Roger Kay, an IDC analyst.

"We're actually in the more mature part of the recovery now," he said. "Our forecast for PC shipments is based on the economic assumption that the current boom is fairly weak as far as booms go and is going to be relatively short."

And there's little outside of economic trends to stimulate PC sales growth. Software upgrades haven't sufficiently taxed older computers to the point where many users, business or consumer, feel the need to buy a new machine.

And the features of computers themselves don't vary much from brand to brand, giving manufacturers few ways to distinguish their products as must-have items. When consumers dash to stores for flat-screen TVs and iPods, they're deciding that a flashy new PC isn't a priority.

Computer makers — and the software developers and chipmakers that supply them — haven't done much to convince customers that they want new machines, said Rob Enderle, who heads market research firm the Enderle Group in California.

"If you want to get people to buy new stuff, you have to continue to remind them to do that," Enderle said. "You have to create a perception in the buyer that there really is difference, even if there isn't one."
 
Dell has been one of the few PC companies that has found a way to persuade a significant amount of buyers to choose its brand over others.

Dell's share of the PC market was 18.2 percent in the third quarter, up from 16.9 percent a year ago, IDC said. Its nearest competitor, Hewlett-Packard, had a 16.2 percent share, down from 16.6 percent, though HP's market share has historically improved in the consumer-heavy fourth quarter.

Using television spots and its product-promoting mall kiosks, Dell has been a far more aggressive marketer than many competitors, Enderle said.

And Dell has kept its reputation alive as the computer company with the lowest prices, though rivals have sometimes offered better discounts. With prices for computer components falling, Dell could get more aggressive on pricing in the next few months.

A holiday price war could entice more customers to buy new PCs, but it would put pressure on already thin profits.