Why Are Computer Sales Slumping?

N E W   Y O R K, Aug. 9, 2001 -- The personal computer has become a staple of modern life. But is the era of the PC losing momentum?

The PC has changed the way we work, communicate and spend our time. It has helped the economy boom, made Bill Gates the world's richest man, spawned a new class of entrepreneurs and helped people create millions of Web pages. And the PC has been the subject of countless accolades, from Time Magazine's Man of the Year award in 1982 to the more recent utopian musings of technology gurus.

But as we approach Sunday's 20th anniversary of IBM's first PC — the forerunner of the machines that now dominate the market — sales are declining, almost for the first time since computers became mass consumer goods.

It's not just that the once-explosive industry's growth has slowed; rather, fewer people bought PCs in the first half of 2001 than they did in the last half of 2000. That has industry observers trying to determine if the slump is just a temporary aberration due to the sluggish economy, or a harbinger of something more serious.

2001 Will Remain a Struggle

According to research firm Gartner Dataquest, PC sales suffered a year-to-year decline of 1.9 percent in the second quarter, on top of a first-quarter decline. That marks the first time since 1986 that sales have gotten worse, and industry observers are not expecting things to improve during the rest of 2001.

"Compared to last year, things will be lousy," says Steve Baker, an analyst with research firm NPD Intelect Market Tracking in Reston, Va.

Charles Smulders, a PC analyst at Gartner Dataquest in California, expects worldwide sales to remain flat compared to 2000.

"There is an underlying weakness in the market caused by saturation," Smulders says. "Everybody who needs a PC pretty much has one. That means we won't see the sustained levels of growth that we've had in the past 15 or 20 years."

What Will Spur Sales?

Indeed, analysts frequently say they feel the PC market in the United States has become "mature" — that is, the market has reached the point where explosive growth ends and relatively few households will be buying a PC for the first time.

"I think it's pretty likely that what we've seen is the shifting of the market into a more mature market," says Baker. He estimates that nearly 60 percent of households have a PC, and thinks it is possible that the figure could rise into the 70s. "It's not the VCR and TV and it's never going to be, but … there's this glimmer of hope that there's another market of people who could conceivably come out and buy a computer."

But for PC makers, there's no guarantee of that — or that sales will improve next year, even with a stronger economy and more consumer spending.

So what will take to get people to pay for new PCs in the near future?

"The challenge for the industry is to find new applications that will cause people to buy PCs," says Smulders.

In the short term, some think the release of Microsoft's new Windows XP operating system, which has a variety of new multimedia features, could spur PC sales forward.

"It has promotion behind it, and it's building a reputation as having a lot of things you can do," says Baker. But Smulders disagrees, saying he expects XP to have only a "limited effect" on PC sales.

The Replacements

In the longer run, the saturated market, combined with a lack of new software and novel applications has contributed to the current PC malaise.

All of these factors have some technologists and analysts talking of a post-PC era, a time when the computing devices used by most people are not the familiar desktop boxes that have launched careers, built fortunes, and become a seemingly permanent fixture in our homes and offices.

"We're coming out of the fixed Internet era, based around the desktop PC," says John Stautner, a vice president for technology and new markets at Compaq, the world's second-biggest PC maker. "We're looking at an era when you can get on the Internet from pretty much anywhere."

Stautner thinks that "mobility, flexibility and the ability to stay in touch," will be the hallmarks of popular computing devices of the future.

(Day Two: A look ahead at the PC and the next Internet.)

Still, not everyone agrees that the PC era in winding down.

"For all the stuff you can say about PCs, they're still a tremendous product that can do a lot of things at a reasonable price," concludes Baker. "People are reluctant to give that up."

And it's a view that IBM engineers share as well.

"I do believe that in the next five years, the PC as we know it will continue to be around," says David Bradley, one of the original 12 IBM researchers who starteddeveloping the PCs in the 1970s. "The price to performance ratio can't be beat … Since most people have jobs where 80 percent to 90 percent of the time they're behind a desk, the PC will always be there."