PC slump: will it continue?

Sales are down, number of PCs shipped stagnates, and virtually every company in the PC industry - including Apple, Compaq, Intel and Microsoft - have lowered their earnings forecasts.

The very unmerry holiday season for personal computer makers could carry over into an even uglier new year hangover: PC sales, according to some analysts, may have reached their all-time peak.

In terms of revenue, "It's downhill from here for the foreseeable future," said Eric Schmitt, an analyst at Forrester Research.

The near-term results are dismal. Sales of PCs last month were off 17.5 percent from the previous November, according to PC Data - and the research firm expects the slump to continue through the end of the year, leaving the number of PCs shipped unchanged from the 7.5 million sold in 1999.

In the first serious symptom of sectorwide sickness, Gateway said sales over Thanksgiving weekend were 30 percent lower than expected, meaning its fourth-quarter revenue would be a half-billion dollars below its previous estimates. Since then, virtually all the companies in the PC industry - including Apple Computer, Compaq Computer, Intel and Microsoft - have lowered their earnings forecasts for the current quarter. While Dell Computer hasn't issued such a warning for its current quarter, analysts said it's likely Dell will also taste the pain.

Why weren't PC makers prepared for the sharp downturn? "The reason everyone was blindsided by this is because they were looking at sales that were flat in September and October, and they assumed that the fourth quarter would pick up," said Stephen Baker, PC Data's lead hardware analyst.

Sales haven't picked up, and now PC makers are expected to slash prices to clear out inventory. Last week, Dell cut prices on some notebook models by 20 percent, leading some analysts to predict a punishing price war through the first half of 2001.

Computer companies blame the slowdown on the wider drop in consumer spending. But there are other factors: The market for first-time PC buyers is almost gone; more than half of U.S. households own a computer, according to Forrester. Furthermore, PC life spans are extending, at least in part because of the Net - nobody needs a faster processor or another 20 gigabytes of hard drive space to surf the Web.

"The biggest problem is that there's no great reason to buy a new PC," PC Data's Baker said. Instead, consumers are signing up for broadband service, or buying computer peripherals like digital cameras, handheld computers or CD burners. PCs are not, however, being displaced by so-called Internet appliances, analysts said.

The silver lining, of course, is that people in the market for a computer will find bountiful bargains. "It's a fantastic time to buy a PC," said Kevin Knox, a GartnerGroup analyst.