Worldwide PC market: the search for growth - personal computer - PC Review and Forecast

The global PC industry has reached a state of maturity, even momentary stasis, characterized by high-volume, lower-margin dynamics. Success in the marketplace is largely determined by the ability to competitively design, source, manufacture, deliver and price products. Not surprising in this competitive environment, the worldwide vendor ranks are consolidating. In addition to consolidation, IDC expects to see increased emphasis on high-growth regions such as Latin America in the short term as vendors look for payback niches.

The 1992 worldwide PC market reached 29.6 million unit shipments, up 14.4% from 1990. The dollar value of shipments rose a slight 4.7% as price erosion swept across the worldwide PC marketplace. The installed base of PCs reached 138.0 million units. Demand for PCs was driven by first-time PC purchases in many markets, replacement purchases, purchases of portable PCs, increased penetration to household and small business markets, new channels of distribution, and the growing popularity of Microsoft's Windows 3.X.

IDC projects that the worldwide PC market will grow at nearly the same pace in 1993 as in 1992. Unit shipments are forecast to increase 13.7% to 33.7 million units over the previous year. The dollar value of shipments is pegged at $67.7 billion, up a modest 7.7% from last year due to continued price slashing and the availability of low-priced chips. By 1996, IDC estimates that worldwide unit shipments will grow to 43.6 million with an accompanying dollar value of $84.8 billion.

The relative stability of the worldwide PC market will be affected by a series of shorter- and longer-term push/pull factors. In the short term, the following will accelerate growth:

* Greater affordability brought about by global price wars

* The popularity of notebook and subnotebook PCs

* Microsoft's Windows, which has breathed new life into Intel-based systems and DOS software applications

* Growing expansion in ROW markets, especially countries in Latin America and the Pacific Rim

* Expansion in the home PC market, and the complementary consumer distribution channels

* Improved pricing of PC applications software and peripherals

* The continued proliferation of networking

In the short term, IDC predicts the following could inhibit growth in the worldwide PC market:

* Worldwide economic woes, which, although abating somewhat in the United States, have taken firm hold in Western Europe and Japan

* PC market maturation and saturation

* Slow development of promising but unpredictable third-world markets

* Personnel and operations cutbacks of major corporations

* Inability to penetrate small business, education, and household markets outside major mature geographic markets (e.g., United States, Western Europe, Japan)

In the long term (1995-1996), IDC predicts the following should accelerate growth in the worldwide PC market:

* High-performance processors including Intel's Pentium and lower-cost RISC alternatives

* The emergence of complementary, new-function, pocket-sized mobile PCs

* Wireless communications technologies and networks

* Upgrade purchases and downsizing

* The realization of multimedia

In the long term, IDC predicts the following could inhibit growth in the worldwide PC market:

* The emergence of competing hand-held computers

* The availability of digital information and entertainment services on different devices including television

* Increased saturation in established markets

* Saturation of large new geographic markets

* Low growth rates due to market maturity, with no new large geographic growth markets to offset it

Not surprisingly, this range of stimuli will take affect at different rates in the world's PC markets. Following are regional analyses of PC markets in 1992 and forecasts for 1993.

United States: Moderate 1993 Growth after a Wild 1992

In 1992 PC shipments grew a startling 16.5% to 11.4 million units, up from 9.8 million in 1991. By contrast, the 1990-1991 increase in unit shipments was a paltry 3.3%. Due to continued price wars, total U.S. dollar value told a more modest story, growing 7.0% to $24.0 billion. Still, this performance compares favorably to the 4.2% dollar value decline experienced in the 1990-1991 period.

After a sluggish first half of 1992, the U.S. market exploded in the second half. The buying boom that began in mid-1992 was triggered by several events: an easing of the U.S. recession; Intel's historic price drop on microprocessor prices; the popularity of Windows; Compaq's aggressive pricing on new low-end products; the convergence of unprecedented low prices with the rise of the cost-conscious small-office/home-office (SOHO) market; and rapid expansion in alternate channels of distribution.

Despite astounding market growth in the fourth quarter -- which is actually benefiting only a small group of PC system companies -- the market mood is one of nervous optimism. There is a feeling that the market may be skittish, prone to fluctuation and unpredictability. This impression stems from the huge jump in short-term demand and the uneven pace of some vendors' performance.

A continuation in the demand surge is expected to provide growth in PC units of 15.4% in 1993. Despite a moderation in the PC price wars, the value of unit shipments is forecast to grow only 3.8% year-to-year. IDC believes that the surge in demand -- albeit temporary -- will be compacted into a 12-18-month time frame that started in mid-1992.

TABULAR DATA OMITTED

IDC has increased its forecast for the U.S. market in 1993 from its initial outlook based on the following factors:

* Stronger-than-expected unit growth in 1Q 1993. In particular, sequential unit jumps in Q1 1992 for players such as Zeos, Acer, and ALR are indicators that the market is still booming.

* Strong new product cycles from IBM, Compaq, HP, and Toshiba in Q2 and early Q3.

* The large installed base of PCs purchased in the mid and late 1980s that need to be upgraded.

* The ongoing price competition between vendors. This competition provides better and better value for buyers.

* The declining cost of multimedia PCs.

* A broadening of the PC feature set embodied in the declining cost of sound cards and CD-ROM drives. In addition, innovative technologies are converging on PCs, including infrared communications, PCMCIA, and voice (phone).

* Expansion of consumer-focused distribution channels.

IDC believes the forceful dynamics that have been fueling the U.S. buying spree will continue throughout 1993. It is doubtful, however, that the huge growth percentage experienced in the second half of 1992 will be duplicated in 1993. By then, the market will have absorbed significant new product cycles from high-growth vendors including Apple, IBM, and Compaq. In addition, these vendors will have fulfilled to a large extent their distribution channel expansion plans.

The late 1992 boom is a temporary phenomenon. The market should return to growth rates that reflect the mature state of the PC market. The psychological drawing power of the PC price war brought about by its widespread coverage will diminish, and the pace of upgrade buying may moderate.

Western Europe: Sluggish Economics Cloud PC Picture

In Western Europe, shipments rose a robust 12.4% from 1991 to 1992, with total volume at 9.8 million units. Major factors here adding to the unit growth in 1992 were changes in replacement cycles, resulting in users viewing PCs as having lower worth. First, older PCs are now likely to be totally replaced rather than upgraded, because falling prices make replacement more attractive. Second, the impact of major brand names coming back into broader user segments and channels of the PC markets has also had an upward impact upon demand.

The most significant announcements in 1992 undoubtedly came from Compaq, which launched the largest amount of product from any single vendor in the PC market at one time over the year. However, equally of significance were announcements from IBM/ICPI (Ambra), Apple, ZDS, Hewlett-Packard, and IBM itself. A greater number of PCs were shipped in the second half of the year than usual, due mainly to the impact of Prolinea and Ambra in June and Valuepoint in October. Major European players like IBM, Compaq, and Olivetti shipped well over 35% of their PCs in the last quarter alone.

In 1992, significantly lower prices combined with a rapidly aging installed base to accelerate PC replacement across Europe. TABULAR DATA OMITTED IDC believes that, in the 1992 business market, replacement cycles for PCs were shortened by one-third. Changes of this nature affect the short-term trends in significant ways, but ultimately the replacement cycle returns to a settled position again once the user community becomes used to such lower prices. IDC's European forecast for 1993 expects an increase in sales activity in the first half before dying down again as the summer progresses.

Nineteen ninety-two saw the home/hobby computer market develop into a significant segment in Europe. With 33% of the units going into this sector in 1992, the share of home/hobby sales in the United Kingdom, Germany, and France was a large element. Over time, the home/hobby market in other countries will begin to develop, and the share of the market will gradually rise to almost 40% in 1997.

The development of alternative distribution channels, and in particular the continued expansion of the German vendor-owned stores (Vobis and Escom), will play a crucial role in how this sector develops, and who will become the major players.

Vobis is really like the European version of Gateway 2000: a fast-growing, price-oriented vendor with ownership of its distribution channel (a network of company-owned stores). Last year was another strong year for this German vendor as its position in Europe grew. The company's shipments rose to 389,000 units, up nearly 60% from 1991. Vobis remained strong in its core country market while expanding into France and the United Kingdom.

The success of this vendor has been built foremost on its ability to get low-price PCs to consumers in a way that mirrors the linkage of superstores and direct-response channels to the U.S. consumer and home office markets.

More subdued growth awaits the Western European PC market in 1993 as the spurt of growth seen in many countries at the end of 1992 loses momentum. IDC believes the recent growth was caused by a number of factors that combined to pull in unit demand ahead of time. The combination of inexpensive high-performance computers, broader availability, and a variety of major and minor brands affected the rate at which users were replacing their installed PCs. These PCs would have been installed at a later date, and so the forecast dips slightly in 1993 as this replacement cycle returns to more "normal" conditions.

PC purchases in the next year will be moderated by the European business climate. Economic forecasts across Europe continue to be pessimistic, with most of the major economies anticipating further declines or flat performances. The situation in Germany, as usual, remains the most critical factor to the European market as a whole. When and to what extent the German economy returns to growth affects a large number of the smaller Western European countries through its trade links and its position as a large export market to other Western economies.

In terms of value, 1992's PC market continued to fall, but with accelerated unit shipments, the fall was less than previously forecast. Indeed, 1992 has seen the last of the margin being extracted from the PC market sales process. All the major vendors and channel players are now running lean, and 1993 PC prices are not set to mirror their 1992 falls. PC prices over 1993 will begin to resume a more "normal" curve against the falling prices of their components. These changes in pricing structure in 1993 will result in a slight increase in the value of the PC market for 1993, after two consecutive years of decline.

Japan: Price Wars May Escalate

The Japanese 1992 PC marketplace reflected the country's sluggish economy. Unit shipments of PCs in Japan declined 2.9% 1991-1992, with total unit volume at 2.2 million units. Due to a more austere outlook, Japanese manufacturers cut back on overseas development and further dampened consumer confidence.

U.S.-based manufacturers continued their drive into the Japanese market, which continued to be dominated by domestic manufacturers, and exported the price war as part of an effort to cut into their market share. However, the price war had limited effect on the market in 1992.

The Japanese market should rebound in 1993 with unit growth projected at 15.2% and volume at 2.5 million units. Other factors behind the upward growth trend in the Japanese PC market were the burgeoning market for multimedia PCs, the escalating price war introduced by U.S. vendors Dell and Compaq, the introduction of Windows, the computerization of public elementary and junior high schools, and the replacement of 8- and 16-bit systems by 80486 PCs.

ROW: Huge Growth to Continue

In 1992, PC shipments for the rest of the world (ROW) increased a cumulative 21.1% in 1991-1992 to 6.2 million units, the value of shipments rose 20.1% to $9.8 billion. Within this group of nations, Latin America is forecast by IDC researchers to be the fastest-growing region in the ROW group of markets with an increase in unit volume of 28.5% 1991-1992. The major country markets in Latin America-Mexico, Brazil, and Argentina are estimated to have grown above 20.0% in units last year.

In the Asia Pacific region, the latest IDC research shows unit growth of 18.6%, with Thailand and Malaysia the hottest growth countries. Korea and Australia are the two largest country markets with 1992 shipments in both geographies at almost 700,000 units. In the other major ROW country market, Canada, unit shipments hit 905,000 units, up 13.3% over 1991 levels.

ROW is the fastest-growing geographic category, with unit growth pegged at 20.3% for 1993 and dollar value at 18.5%. Latin America is again expected to be the high-growth region in 1993, with unit growth projected at 24.0%. An indicator of the growing importance of this region is the fact that in 1993 the value of shipments in the Mexican market is projected to climb above $1 billion. Mexico will join Australia and Canada as the other billion dollar country PC markets in the ROW group. In Asia Pacific, unit growth is expected to moderate to 14.0%, with Thailand and Malaysia again growing at the highest rate. Unit growth in Canada is expected to slow to about 8.0% in 1993.

COPYRIGHT 1993 International Data Corporation
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