PC Business Hits High Note in '99; Y2K Outlook Wary

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Last year proved to be a boon for computer vendors as shipment records for PCs were shattered, but industry tracker Dataquest suggested that the good times may be over unless manufacturers can change consumers' buying habits and roll out inexpensive business PCs and web appliances.

Dataquest, San Jose, Calif., and International Data Corp. (IDC), Framingham, Mass., respectively reported last week that during 1999 the PC category grew by about 21.6 percent, with 43.8 million units shipped, and 25 percent with 45.2 million units shipped. However, Dataquest is forecasting a 4 percent slowdown in 2000, particularly in the U.S. market.

Hewlett-Packard's projections are much more optimistic. Tom Anderson, product marketing manager for the Pavilion desktop PC line, sees healthy growth in the category.

Sales are expected to be brisk for HP for the first half, he said, adding that the replacement cycle is staying steady, as more families upgrade their home's primary PC and let the children use the older computer.

"We see this year differently," said Anderson. "When we started planning for 2000 six or nine months ago we saw significant unit growth and only modest revenue growth, but now we think revenues will be strong too. PC sales will be brisk during the first half."

Continuing to fuel PC sales, Anderson said, are the ISP rebates -- which he said will continue to have a positive impact on sales for at least the bulk of 2000, although he was not sure what would happen afterward.

Apple expects this quarter to be down compared to the last, but this is primarily due to the high volume of sales the company experienced during the holiday season. Apple reported it sold 1.38 million computers in the quarter, including more than 700,000 iMacs and 235,000 iBooks, racking up year-over-year unit growth of 46 percent.

The company is expecting sales to drop about 15 percent this quarter, compared to last, but these will still be higher than during the same period last year.

"It was an incredible quarter from a revenues standpoint,'' Apple's chief financial officer Fred Anderson said in an interview.

In contrast, Compaq, which lost its number-one position in U.S. PC shipments to Dell last year (see story at left), is not blind to the challenges facing the category. Compaq CEO Michael Capellas expects a slow first quarter but feels the situation will turn around as the year progresses.

Citing chip and memory shortages, Dell Computers lowered its expectations for its fourth quarter ended January 28, 1999. The company said revenues will be $6.7 billion for the quarter, or about $800 million below the figure originally expected.

When just the retail market is observed, eliminating Dell and Gateway, Compaq retained its number-one position, with 33.4 percent of the market. HP comes in second, with a 31.7 percent share, according to NPD Intelect, Port Washington, N.Y.

Compaq unit growth in 1999 increased 57.6 percent over 1998, while HP showed a whopping 80 percent gain year over year.

Although eMachines did not ship enough units to show up on IDC and Dataquest's radar, the PC maker had a respectable showing on NPD charts. The research company showed eMachines with 13.3 percent of the market in 1999.

Sima Vasa, NPD's divisional VP for technology products, said eMachines' extremely aggressive pricing strategy helped it go from almost zero share in 1998, when it entered the market, to its current position.

IBM and Apple fleshed out NPD's top retail sellers, with 8 percent and 2.7 percent of the market, respectively.

"Price declines were a main driver of category growth in 1999," Vasa said, noting that "eMachines' super-low prices attracted consumers who may not have purchased PCs otherwise. HP and Compaq fed the trend by introducing their own offerings at low price points."

Charles Smulders, Dataquest's principal analyst for PCs, said smaller and less expensive computers and appliances need to be brought to market to spur sales.

HP's Anderson said his company has just created a new division to develop web appliances, and some products should ship this year.


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