Who buys?
IDC said it had to reduce its forecast because of weakness that it found in the U.S. among buyers in the 'public sector' (i.e., all levels of government, plus schools and universities). Many local governments in the U.S. are at least partially funded through sales taxes, which fell during the recent recession. PCs managed to stay in the public sector budgets last year, but things only got worse this year. At the same time, consumer sales in the U.S. remained strong.
Basically, IDC reported that non-consumer PC sales in the U.S. (corporate and public sector) declined 6.6 % in 2001, and then rose by only 0.5 % during 2002. In 2.3 it should rise only 2.9 %, but the rate should rise to a healthy 10.2 % in 2004, IDC predicted.
Consumer PC sales in the U.S., meanwhile, fell a painful 19.6 % in 2001, but then rose 8.4 % in 2002. It should rise 11.3 % in 2003 and 10.2 % in 2004, IDC predicted.
Europe and Asia/ Pacific
IDC did not give a statistical breakdown for Western Europe, but did complain of surprisingly slow demand there during the fourth quarter of 2002. Consumer sales led the market, but non-consumer sales were less than expected, as hardware investments were postponed due to poor economic conditions and political uncertainty.
Conditions were similar in the Asia/ Pacific region, IDC reported, with declines in public sector spending, although corporate sales were strong. In Japan, however, strong sales in the corporate and public sectors made up for weak consumer sales. After two years of declines, the Japanese PC market should experience growth in 2003, rising 2.9 %, IDC predicted.
New formats, such as the tablet PC, added some life to the overall PC market, but for the moment their contribution remains mostly hype, IDC noted. Reaching the market halfway through the fourth quarter of 2002, worldwide sales of tablet PCs during that quarter totalled 72,000 units, IDC reported. (By comparison, worldwide PC sales totalled about 161 million during 2003). Acer and Hewlett-Packard led the new market, with Fujitsu not far behind, IDC reported.
Cost-cutting and shifting strategies
As IDC was making its predictions of lower growth, the pain caused by the lower numbers was already being felt at Gateway, the number three PC vendor in the U.S. The firm announced that it hopes to finish 2003 with a 'positive cash flow' - it was not so bold as to hope to become profitable - by reducing its costs by $400 million. Cost-cutting measures will include the immediate closing of 80 stores (29 % of its total stores) and laying off 1,900 people (or 17 % of its workforce) including the staffs of the closed stores. But those measures will only reduce costs by about $200 million. The rest of the total will come from various unspecified 'productivity enhancements'. The company noted that its business products actually made a profit last year, and it will reinforce that success by, among other things, re-launching its server and storage product lines and offering a broader range of mobile units. In the consumer market, it said it would shift its focus from low-cost units to 'quality, service, support and total system value'. Gateway has not made a profit since the fourth quarter of 2001. Its nemesis, Dell, has remained consistently profitable, even when its sales were down. But Dell, unlike Gateway, has always emphasized the business market. Hewlett-Packard, having spent the year digesting is acquisition of Compaq, is also reporting healthy profits, but it also has a broader product line.
War
Meanwhile, the stock market soared as uncertainty about the possibility about a war in Iraq gave way to an actual war in Iraq, leading to Wall Street's best week in 21 years. Many analysts had blamed uncertainty about the Iraq situation as one of the things that were in the way of an economic recovery. Now the question is whether a real war - one considered dubious in many circles - is worse for the economy than fears of war.
Lamont Wood