Gartner: 2005 PC Revenue Growth Expected to Be Flat

Tom Krazit, IDG News Service

The surprising strength of the PC market this year won't give PC vendors a corresponding rise in revenue, according to a forecast released today by research firm Gartner.

After initially downplaying expectations for the PC market in 2005, Gartner and fellow research firm IDC have reported separately that unit shipments have risen at roughly the same pace in 2005 as they did last year. Price cuts appear to be fueling that growth, however, said George Shiffler, principal analyst with Gartner, on Monday.

As a result, despite projections of a 12.7 percent gain in shipments, worldwide revenue from PC sales will grow by only 0.5 percent in 2005, Shiffler said.

Solid Results So Far

PC industry companies like Intel and Hewlett-Packard have posted solid results this year as consumers and corporations continue to replace their older PCs, often with higher-margin notebooks. Intel's chip factories are running at full capacity, and HP's PC division posted its best quarter last week since the company acquired Compaq in 2002.

On the other hand, market-share leader Dell's second-quarter results might signal that difficulties are in store for the PC industry in the second half of the year. Dell recently missed Wall Street's quarterly revenue expectations for the first time in quite a while, as it failed to convince customers to upgrade their orders to configurations that generate higher profits for Dell, company CEO Kevin Rollins told reporters and analysts last week.

Dell's desktop PC shipments grew by 17 percent, and shipments of its mobility products grew by 47 percent, but the company's overall revenue fell just short of its expectations.

The protracted purchasing cycle of PCs bought to replace pre-Y2K systems is coming to an end, and vendors are trying to stimulate demand by cutting prices, Shiffler said. "People are sensing that growth is about to fall off, and one of the ways you can fight that is by cutting price," he said.

PCs are notoriously low-margin products--which is one of the reasons IBM gave up on its well-regarded PC business earlier this year and sold the division to Lenovo Group. Vendors have been trying to improve margins by selling PC users on the benefits of notebooks, but the majority of the market continues to buy desktop PCs for now, Shiffler said.

As notebook prices decline, desktop prices drop too, Shiffler said. PC buyers are getting great values, but vendors are being forced to sacrifice revenue in order to retain market share, he said.

"As mobile prices decline, [vendors] have to push desktop prices even lower. There's increasing mobile-for-desktop substitution, but it's not happening fast enough to aid the overall industry," Shiffler said.

Gartner believes that worldwide PC revenue will actually decline slightly in 2006, even though shipments are expected to grow by 8.7 percent.