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PC demand slackens – Another bad sign for tech

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Note: The Skinny blog is written by Rick Smith, editor and co-founder of Local Tech Wire and business editor of WRAL.com.

RESEARCH TRIANGLE PARK, N.C. – More bad news for the high tech sector came Tuesday when analyst firm Gartner cut its PC sales forecast by 2 percent for 2010.

While Gartner said PC shipments will still be much higher than a year ago with a jump of 19 percent, second half business will decline to 15.3 percent from 2 percent, Gartner research director Ranjit Atwal said.

Gartner’s somber news follows Intel’s cutting of its profit forecast.

And if you hadn’t noticed this news, Cisco shareholders certainly have. The world’s top networking gear maker is trading at 52-week lows. It’s now under $20.

Video game industry sales are slumping, too. And even though semiconductor sales were reported surging in July, that data could be running behind Intel's warning based on what the world's top chip maker saw in August.

News out of China shows that country’s giant economy continues to grow, so Morrisville-based Lenovo’s move to focus on that market seems smarter than ever in light of Gartner’s news.

"The PC market revived in the first half of 2010, but the real test of its resilience is yet to come," Atwal said. "We have reduced our forecast for second-half 2010 PC growth to 15.3 percent, approximately 2 percent below our previous forecast, in light of the uncertain economic outlook for the United States and Western Europe.

“There is no doubt that consumer, if not business PC demand has slowed relative to expectations in mature markets,” he added. “Recent dramatic shifts in the PC supply chain were in no small part a reaction to fears of a sharp slowdown in mature-market demand. However, suppliers' risk-aversion is as much a factor in these shifts as any actual downshift in demand."

Mature markets include the U.S. – still the world’s top economic driving force. But what else can be said about our bleak state of affairs?

Gartner believes more nearly 368 million units will ship this year, up substantially from 308 million a year ago. But let’s face facts – 2009 was a bear market.

And note Atwal’s comment about “risk aversion” among suppliers vs. actual drops in demand.

Looks like some executives are shifting back to fear mode, not optimism.

But Atwal does expect consumers and businesses to continue some buying due to age of machines and growing expectations of what PCs deliver.

"Consumers buoyed the PC market in 2009 as businesses delayed their purchases,” he said. “The slow pace of economic recovery and austerity measures in Europe have made PC suppliers very cautious in 2010. However, consumer demand is likely to remain strong even if the economic recovery stalls because consumers now view the PC as a relative 'necessity' rather than a 'luxury' and will continue to spend on PCs, even at the expense of other consumer electronic devices.”

As for businesses, “refreshing” equipment has to take place.

“The age of the professional PC installed base is already at an all-time high,” Gartner noted.

Atwal pointed out that executives who keep pushing back upgrades “risk alienating employees, burdening themselves with more service requests and support costs, and ultimately facing higher migration costs when they eventually migrate to Windows 7. The bottom line is that businesses need to refresh their PCs sooner rather than later. Thus, the full bloom of the long-awaited professional PC refresh can't be more than a few quarters ahead."

Good points all, but "risk alienating employees?" Is that a real concern? In this job market, unhappy employees can be replaced even more easily than ever, can't they?

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The Skinny

WRAL Local Tech Wire Publisher and Editor Rick Smith dishes out tidbits from the local technology sector. Read more articles…