Cheap, low-powered PCs seem to be the consumer’s choice during these hard economic times. Problem for the OEMs is that the margins on these low-spec systems are razor thin. Has Moore’s Law caught up with the entire PC industry?
Go back five years and the laptop and desktop computer market was split into three distinct sub markets - budget, mainstream and high-end. While high-end had the highest margins, OEMs made most of their money from mainstream models. The margins for budget systems were low but since most of these were little more than junk, that seemed appropriate.
Fast forward to today and things are different. High-end still offers OEMs the largest margins, low-end the smallest margins, and OEMs still hope that mainstream sales will dominate sales of low-end systems. Problem is, Moore’s Law has driven the computing power of low-end budget systems to a point where they are more and adequate for the needs of the average user. In fact, thanks to Moore’s Law it’s getting to the point where low-end is the new mainstream, and since margins are razor thin for these types of systems, This is good news for consumers, but bad news for OEM’s bottom lines. And to make matters worse, even games aren’t driving the high end like they used to, which could well be down to the fact that many PC games are actually ports of console games, and all the major consoles are now getting a bit old and in need of a refresh.
It seems that this shift to lower-powered, lower cost systems could hurt Apple, especially if NPD data for January is accurate. For January the data showed that while for Windows-based systems the revenue unchanged compared to January ‘08, while for the Macs revenues dropped by a massive 10.4%. Another takeaway from the NPD data is that over the same period Mac revenues fell by almost twice as much as unit shipments, showing that people are now going for lower-priced units.
I have to be honest and say that I only see things getting worse for OEMs. Take netbooks. Even a humble system such as Samsung’s NC10, with its 1.6GHz Intel Atom CPU and 1GB of RAM, is more than capable of running Windows 7, along with a raft of the most popular desktop application. This is a system that costs around $450. Throw in a keyboard, mouse, external CD/DVD drive and a flat panel screen and you have system that’s an acceptable desktop substitute for many people. A year from now these systems will more powerful and likely cheaper than the current raft of netbooks. Before long you’re got a system that’s up to the demands of casual gaming, and then the budget and mainstream sub-markets will have merged. Again, good news for consumers (assuming that enough OEMs survive the bloodbath to allow for competition), but bad for the OEMs.
The sales pendulum is continually swinging, but right now it’s heading in the direction of cheaper systems. OEMs are going to have to have to get used to thinner margins and scrabbling for market share.
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