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Friday, 06 March 2009 05:54

Netbooks and recession drive collapse in PC average selling prices

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There’s been a dramatic collapse in average selling prices (ASP) for PCs around the world with vendors under enormous pressure as they are hit by a rapid decline in revenues and the effects of the global economic tsunami.

In a report just released, market research and industry advisory firm Technology Business Research (TBR), warns of, what it calls, a structural and permanent decrease in ASPs after the collective ASP of vendors dropped 13% in the fourth quarter of 2008, causing an 18% decline in revenues.

TBR says the declining average selling prices caused far more damage to PC vendors’ revenues in 4Q08 than the declines in unit volume, with HP, Dell, Lenovo and Apple’s unit sales combined decreasing only 5% year to year.

Further, TBR says that ASPs have been declining over the long term, but the fall-off just became steeper in 2008, with the bottom dropping out of the market in the fourth quarter.

According to TBR, while the addition of netbooks to the product mix directly drove down ASPs, their presence in the market affected ASPs across the product spectrum.
 
And, buyers of PCs, also under pressure from the economic downturn, have lowered their sights from the top-of-the-line models and are looking to buy cheaper models. It seems also, from the TBR report, that the bad news for vendors is that the shift by business purchasers and consumers to lower priced models is not just a short term phenomenon but is here to stay for the foreseeable future.

“Netbooks showed both consumer and business purchasers that, for most uses, they do not necessarily need top-of-the-line PCs. The recession is driving customers to value-based decisions and they will retain the habit long after an economic recovery. Like the gasoline price shocks of 2008 and the 1970s, the recession is causing PC buyers to downsize,” TBR observes.

However, TBR says there was some good news for vendors in the unit and ASP figures for 4Q08.

In what it describes as a “dramatic and frightening economic crisis,” TBR says unit volume was down only 5% and it believes this demonstrates the price elasticity of the PC market. “As prices plummet, the market expands, both by adding new purchasers and by current PC owners purchasing additional PCs. With useful PCs available at a much lower price point than ever before, unit sales would have mushroomed under typical economic conditions.“

TBR says the decline of ASPs challenges PC vendors apart from the recession, with vendors typically having lower profit margins on lower-priced models. According to TBR, the lower-priced PCs are increasingly seen as interchangeable and disposable commodities, and vendors are having difficulty differentiating.
 
TBR suggests that if vendors are to drive sales of more than one PC per customer, they must make it easier to manage data and programs on more than one PC at a time, but they also caution that the lower price point makes it difficult to profitably provide adequate and expected service and support – something which I’ve no doubt customers will still demand even if they are paying less for the PC than they might have previously.

What’s more, the PC market is changing radically, says TBR, and despite the decline in ASPs and revenue, they say vendors must look to change their relationships with buyers, establishing longer-term relationships and providing valuable paid services after the sale.
 
No longer dominated by hardware or software, PCs are becoming a service business, according to TBR, and they say the change in the market presents vendors with both threats and opportunities.
 
In a final piece of advice, TBR suggests that companies that can figure out “how to embrace this trend most quickly and profitably” will emerge as winners, and “the winner’s circle may contain different players from those who stand there now.”

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