Gartner says lower prices drive 11% PC growth in 2Q06

Stan Beer
Sunday, 23 July 2006 16:59

IT Industry - Market

Driven by price cuts, worldwide PC shipments totaled 54.9 million units in the second quarter of 2006, an 11% increase from the same period last year, according to preliminary results by research group Gartner.

Central processing unit (CPU) inventory clearance activity by Intel, and generally more aggressive pricing by Intel and AMD attributed to lower prices in the quarter. The impact of the CPU price decline varied among regions. In the United States and Asia/Pacific, the cuts boosted shipments, while in Europe, Middle East and Africa (EMEA) where there remains higher than normal finished goods inventory, shipments were adversely impacted.

“On a worldwide basis, large vendors continued to gain share at the expense of mid-tier vendors and system builders,” said Charles Smulders, vice president of Gartner’s Client Computing Group. “The price cuts during the quarter undoubtedly helped the large vendors, as they were able to put more pricing pressure on the smaller players. Intel’s accelerated ramp on its new CPU lines will expose those vendors who have not invested enough in tools and processes to manage their supply chain.”

In the second quarter of 2006, the top 5 vendors accounted for nearly 50% of the worldwide PC market. These vendors all grew faster than the overall industry average. Dell maintained its No. 1 position in worldwide PC shipments, as it continued to grow much faster outside the United States. Hewlett-Packard continued to show strength in the worldwide market, backed by solid consumer growth, mainly in mature markets.

The PC market in the United States grew 6.4%, as shipments reached 16.6 million units in the second quarter. Dell grew at the industry average in the United States, and this performance was much better than the first quarter. Dell’s focus on service and support, and adoption of a more aggressive pricing strategy were key factors in its better performance. HP had much faster growth than the U.S. industry average due to strong consumer shipments.

“The consumer market continued to lead the U.S. PC market, as mobile PC shipments remained strong. Accelerated price declines associated with the CPU oversupply stimulated additional mobile demand,” said Mikako Kitagawa, principal analyst for Gartner Dataquest’s Client Computing Markets Group. “The professional market experienced slow growth mainly due to the sluggish sales in the large enterprise market, however the small business market continued to grow steadily.”

"For the first time since the first quarter of 2003, the region experienced a single digit growth. The vendors seemed in denial of this cyclical downward trend and few had enough flexibility in their business models to adequately adjust to rapid market dynamics change,” said Ranjit Atwal, principal analyst for Gartner's computing platform group in EMEA.

The slower growth was exaggerated by the vendors and the channel trying to reduce high PC inventory positions as well as working to ensure Restriction of Hazardous Substances (RoHS) recycling directive compliance. The inventory build up in the distribution channels had been apparent for a year but neither the vendors nor the distributors took enough action to deal with the problem, leaving the vendors with difficulties shifting inventory in a weaker market.

The consumer market experienced good growth in mobile PCs but was subdued by negative growth in the desk-based market. Price erosion will continue unabated and, combined with Intel’s early price cuts being matched by AMD, Gartner anticipates the market will reach double-digit growth in both segments.

After three quarters of positioning itself ahead of the market growth average, Hewlett-Packard’s results this quarter were below the market growth average, whereas Dell grew above the market growth average with good professional notebook growth. This was due in part to Dell’s aggressive pricing strategy on dual core products which also led to greater success in the SMB segments.

Asia/Pacific and Latin America continued to be the regions with the strongest growth rates. The Asia/Pacific PC market grew 22.5%, as shipments reached 12.4 million units in the second quarter. The region was driven by mobile PC shipments which increased 48% in the quarter compared to the same period last year.

Latin America PC shipments increased 27% in the second quarter with shipments totaling 4.2 million units. Local-branded vendors experienced accelerated growth due to their strong retail presence and their participation in low cost PC programs.

In Japan, PC market growth was nearly flat as shipments reached 3.5 million units in the second quarter, a 0.5% increase from the same period last year. Negative consumer growth was offset by stronger sales in the professional market.