Tuesday, October 10, 2000

Computer Makers May Face Market Saturation

By Matt Richtel

NEW YORK TIMES SERVICE

SAN FRANCISCO -- The personal computer industry, whose double-digit growth helped propel technology stocks for years, finally faces stiff competition f from personal computers.

Lately, it has become increasingly hard to sell consumers and corporations new computers because so many consumers and businesses already own them. And some analysts see signs of market saturation that could portend the end of the glory days for PC makers and their suppliers.

In recent weeks, Intel, Apple and Dell have seen their stocks tumble after warning that demand for computers is lighter than anticipated. The tepid forecasts have dampened investor expectations for the coming quarterly financial reports from those companies.

But some industry analysts say that the warnings suggest something more fundamental is behind the slackening demand. They say the personal computer market is so saturated the industry can no longer assume sales will grow at the annual rates of 15 percent or 20 percent or more to which it has grown accustomed.

"We've run out of room for growth," said Martin Reynolds, research fellow at Gartner Dataquest, a market research firm in San Jose, California. "Look at the saturation in the market. We're there. We're filled up."

Many financial and product analysts see the beginning of the replacement-PC era.

"The corporate market has become a replacement market," said Anne Bui, a senior analyst with the International Data Corp., a research house. "There's no reason to buy anything now. They've bought everything they need."

The figures for saturation levels of the home market vary. Estimates from various market research firms indicate that from 53 percent to 60 percent of the nation's households now have computers, and some analysts expect greater penetration levels to be reached only gradually.

Since 1994, annual sales of computers in the United States have increased at a torrid pace. As recently as 1999, sales soared 23.8 percent to 45 million computers, up from 36 million in 1998, according to IDC.

But for the current year, IDC is projecting a growth rate of only 12.2 percent in the U.S. market.

But Michael Murphy, editor of the California Technology Stock Letter, said PC makers and their investors should take heart that the IDC is projecting worldwide sales at 18.9 percent. He said that roughly 435 million PCs had been installed worldwide to date, which he estimated as only one-fifth the total that will be installed in the coming years.

"Before this whole revolution is over, there will be 2.5 billion computers shipped worldwide," he predicted.

Steve Kleynhans, a vice president at the Meta Group, a market research firm in Stamford, Connecticut, said it was misleading to draw an industry conclusion from the combined warnings of Dell, Intel and Apple, which he said were each dealing with different factors. Intel, he said, which warned analysts on Sept. 21 that its third-quarter revenues would not meet the company's earlier expectations, was facing new competition from chip-making rival Advanced Micro Devices and was not executing as well as it could be.

And he said that Dell's sales were a victim of the sluggish acceptance of Windows 2000. Last week, Dell warned that revenue for its fiscal third quarter would be 3 percent below previous forecasts.

Only in the case of Apple does Kleynhans see "a fairly saturated market," noting that the Macintosh faithful "all have machines." On Sept. 28, Apple said it would earn 30 cents to 33 cents in its fourth quarter, far below analysts' forecast of 45 cents.

http://www.moscowtimes.ru/10-Oct-2000/stories/story47.html

-- Carl Jenkins (Somewherepress@aol.com), October 10, 2000