Report: PC Sales Gains Slow Worldwide

Adding to the mounting evidence that the personal computer market is still in a slump, new figures released Friday showed that "sluggish" sales over the fourth quarter and a weakened economic outlook helped drag the industry down in 2000.

According to preliminary estimates from Gartner-owned research firm Dataquest, worldwide PC shipments totaled 134.7 million units in 2000, an increase of 14.5 percent over the previous year, while domestic sales saw a modest 10.3 percent bump, representing 49.4 million units, in 2000.

The year 2000 figures stand in marked contrast to 1999, which saw record sales growth of 21.7 percent.

Although strong demand for PCs in both Asia and Latin America fueled global sales, Dataquest found that last year's worldwide growth rate lagged far behind the 23.3 percent increase registered in 1999 and even fell short of the 15 percent to 16 percent gain posted in 1997 and 1998.

A report released earlier this month by PC Data found that PC sales fell 24 percent in December from a year earlier, a fifth consecutive year-over-year decline.

Reasons for Fall

These decreases of the increases can be attributed to the convergence of a number of factors, said Dataquest.

"The downturn in growth is concrete evidence that saturation in key segments is playing an increasingly important role in overall market growth, with new shipments unable to mask the effects of economic cycles on replacement buying," said Charles Smulders, analyst for Gartner Dataquest's computing platform worldwide group.

In addition, Dataquest said the slowdown of the economy has dampened purchasing enthusiasm.

"The timing of the economic downturn was unfortunate for the industry in the sense that it coincided with the largest home sales quarter, a segment that is typically the fastest to respond to economic uncertainty," said Smulders.

Smulders also said that estimates point to a weak professional market performance as well.

Dell, HP Outperform

The report found that Dell and Hewlett-Packard (NYSE: HPQ) were the only top-tier vendors to experience growth rates above the industry average both worldwide and in the U.S. last year.

According to Dataquest, Dell's sales spiked 26.9 percent worldwide and 29.8 percent in the U.S. The company's global sales totaled 14.5 million units, for an overall market share of 10.8 percent.

By comparison, Compaq, which held a 12.8 percent share of the global PC market, increased annual sales by only 8 percent over 1999, shipping 17.2 million units.

For its part, Hewlett-Packard shipped 10.2 million units worldwide, holding a 7.6 market share and boosting its overall growth rate by 34.7 percent. This increase was echoed in HP's U.S. figures, which showed that it captured an 11.4 percent share of the domestic market and lifted its sales by 43.2 percent from 1999.

Staying Aggressive

Dataquest said that Dell's aggressive pricing strategy during the fourth quarter contributed to its success, while Hewlett-Packard continued to leverage its strong consumer franchise and solid support of the retail channel.

Despite Dell's growth, the company's fourth quarter and fiscal 2002 earnings estimates were slashed last weak by Bear Stearns analyst Andrew J. Neff, who said the computer maker would not be able to outrun the overall industry slowdown.

In a report to clients, Neff said his weaker profit outlook reflects "lower demand in the U.S. and Asia" and the built-up inventory of unsold personal computers held by rivals, which could lead to discounting.

Similarly, Hewlett-Packard warned last week that deteriorating business and consumer demand would hurt its profit and revenue in its the quarter ending January 31st. In addition, Gateway announced plans last week to cut its work force by nearly 13 percent after the PC maker released earnings that fell substantially short of a previously revised forecast.

Grim News for IBM

Industry giant IBM (NYSE: IBM) did not fare as well for the year, Dataquest found. The industry giant was the only major PC maker that saw a negative growth rate both worldwide and in the U.S.

Globally, the company's sales dipped 1.8 percent, representing just a 6.8 percent market share. It was much harder hit in the U.S., with sales plummeting 18.7 percent and capturing just a 5.4 percent market share.

Earlier this week, IBM barely exceeded fourth-quarter estimates, reporting earnings of US$1.48 per share, compared with $1.12 during the same period a year earlier. The report barely met expectations, as analysts were predicting $1.46 per share.

Silver Lining

Although lowered growth rates during the fourth quarter were "disappointing," Dataquest said that the trend does ease fears of inventory overhang going into the first quarter of 2001, particularly in the U.S. retail market.

"This is better news for the industry, both because it suggests that vendors were able to take some action to stem and reduce the buildup evident in the early part of the quarter, and the anticipated selloff of excess finished goods' impact on 2001 first-quarter shipments should be less pronounced," Smulders said.