PC Industry May Soon See Shift in Power
Sales of personal computers are continuing to grow at a double-digit pace, with sales for top firms growing substantially faster than for others, according to preliminary data to be released today by Dataquest. That sets up a trend that could shift the balance of power in the PC industry over the next year,
Second-quarter computer shipments rose 17% worldwide, to 19 million units, this year, compared with 1996, the San Jose-based market research firm says. The United States posted even more impressive gains of 21.9%, to 7 million units, for the second quarter.
The top four PC vendors--Compaq, IBM, Hewlett-Packard and Dell--each increased their market share by at least 20%. Compaq widened its lead and now commands 11.7% of the computer market (nearly three percentage points ahead of second-place IBM), while Dell boosted sales more than 60% for the second consecutive quarter. Other computer makers, including Packard Bell-NEC, AST Research and Apple, averaged more modest growth of 9.7%, according to Dataquest.
The biggest companies got bigger, in part, because of the “herd mentality” among corporate buyers, which leads them to boost sales of models that are already selling well, said Dataquest PC analyst Scott Miller. Compaq, IBM and Hewlett-Packard also boosted competitiveness by negotiating deals that matched Dell’s lower prices. For its part, Dell benefited from the growing popularity of mail-order vendors in general, Miller said.
Together, these patterns suggest that things could go from bad to worse for second- and third-tier PC vendors, and that could force some of them to consolidate or risk going out of business over the next year or so, Miller said.
By the end of 1998, even some of the bigger computer makers will see their sales start to slow, and they could respond by buying a smaller competitor, he said.
Such a restructuring of the industry could result in higher PC prices, slower product cycles and less technological innovation--hallmarks of the mid- to late-1980s, when IBM and Apple dominated the PC market, Miller said.
Investors are less optimistic about prospects for continuing strong PC sales growth. Shares of Compaq fell $5.25 to close at $135.625 on the New York Stock Exchange, and stock in Dell dropped $7 to close at $163 in Nasdaq trading on Friday, after Gateway 2000 reported earnings growth below analysts’ expectations. If Gateway is vulnerable, they figure, anyone could be.
