The PC industry could be in for a rebound by the end of this year or early next thanks to several catalysts, analysts and industry executives suggested Wednesday.
During a trip to China to discuss the planned opening of a PC manufacturing plant there, Dell Computer Corp. Chairman and Chief Executive Officer Michael Dell speculated that demand from corporate IT buyers for system upgrades could lead to a buying spree around the first quarter of 2002.
Also Wednesday, Microsoft Corp. Group Vice President Jim Allchin announced the release date for the new Windows XP operating system, pledging that its debut in time for the holiday season would drive consumer sales in the fourth quarter, especially for the Windows XP Home Edition.
"The holiday season is going to be great for the PC industry," Allchin said in a conference call about the release.
Microsoft and many other software and hardware vendors have been cautious about forecasting a recovery for the worldwide PC industry, which slowed to single-digit growth in the fourth quarter of 2000. During a conference call April 19 to discuss its third-quarter earnings, Microsoft lowered its expectation for this year's PC sales growth from 10 percent to about 7 percent.
"There are some indications that the PC market could be stabilizing ... but we are very mindful of the effect a further slowing economy could have on the industry and Microsoft," John Connors, Microsoft's chief financial officer, said at the time.
But that sentiment is beginning to shift.
Dell told reporters Wednesday that his company expects to see a "sequential increase in the first and second quarters of 2002 over this year," as that period marks a logical time for corporate customers to begin replacing computer systems. But he also noted that uncertainties in the economy make it difficult to predict precisely when the recovery will begin.
A Dell spokesman downplayed the CEO's optimism.
"If folks are concluding a prediction about an industry rebound they're reading too far into his comments," said T.R. Reid, a spokesman for Dell. "We have made it very, very plain: We don't know.
"But we do believe it absolutely will rebound," he added. "And we see a variety of things driving demand. Windows XP is one of them."
Research firm International Data Corp. said it doesn't expect worldwide PC sales to return to double-digit growth until the first quarter of 2002, according to senior research analyst Anne Bui. While such data would point to further recovery in the industry, Bui cautioned that the figures could be somewhat misleading.
"The only reason it's going to be double-digit growth is because it will be compared to such low numbers this year," she said.
In fact, year over year growth in worldwide PC sales slowed to about 4.5 percent in the first quarter 2001 compared to the same quarter last year, according to preliminary figures from IDC. In the U.S., which accounts for about one third of worldwide sales, sales declined about 8 percent in the first quarter from the same period a year ago.
Giga Information Group Inc. analyst Rob Enderle said the 2001 holiday season will see one of the biggest efforts yet by the industry to stimulate sales, with vendors expected to spend record amounts on marketing to consumers. The release of Microsoft's anticipated follow-up to the Windows 2000 operating system will be one of those drivers.
"There will be about $1.4 billion of marketing focused on getting people back into the stores and buying PCs," Enderle said. "And that has to have an impact."
According to Giga's estimates, Microsoft will spend about $400 million on marketing products to drive PC sales. Allchin said Wednesday that the company planned to spend "hundreds of millions" of dollars to send Windows XP to market. A further $400 million will come from Intel Corp.'s marketing budget, Enderle said, while other software and hardware vendors will spend about $600 million to lure customers into making PC purchases.
"That's a lot of money," Enderle said. "Unfortunately, in the past these folks haven't coordinated very well and as a result there is every opportunity that this $1.4 billion could actually scare people away from the market."
Even if consumers do buy into the marketing push, winning over that market may not fuel big growth. The real push has to come from the corporate market, which accounts for about 75 percent of PC sales, according to Giga. And analysts said Wednesday they don't expect to see sales pick up on the corporate side until early 2002, when corporate IT departments are comfortable increasing their budgets and upgrading to the latest platforms.
For instance, many large IT departments using the Windows platform will likely hold off on upgrading to Windows XP Professional, the first major release since Windows 2000 and Windows NT, because its Oct. 25 due date is too late for year-end upgrades, Enderle said. That will also drag down sales this year because many corporate IT departments will opt to wait for Windows XP rather than spending more money investing in Windows 2000 and earlier operating systems, he said.
Microsoft's Allchin urged in the conference call that companies rolling out Windows 2000 systems now should continue with that effort and wait to upgrade to Windows XP.