ANALYSIS-Once mighty PC makers succumb to slowdown
By Kelvin Soh
TAIPEI Jan 12 (Reuters) - The global PC industry stood tall for most of last year as other technology sectors foundered, but it too has caught the bug of a deepening economic downturn that has hit demand from both consumers and corporate buyers.
As recently as November, J.T. Wang, chairman of Acer (2353.TW), the world's No. 3 PC seller, was confident PCs were immune to global downturns due to the growing importance of computers in everyday life.
"Children will still need to go to school. They will need computers! Businesses will continue running. They too will need computers!" Wang had said.
Fast forward two months, when a slew of recent sales warnings and cuts in business forecasts signal the sudden downturn will last through most of 2009, if not longer.
"Demand is weak, and I don't think we're alone in forecasting negative growth in 2009," said Pranab Sarmah, an IT analyst at Daiwa Institute of Research.
"We may see demand picking up only in the second half of 2009, when the traditional back-to-school season begins and consumers start spending again."
Analysts' forecasts for global PC shipments in 2009 vary, but many expect sales to fall. Research firm IDC expects spending on PCs could drop 5.3 percent this year to about $267 billion, versus its previous forecast of a 4.5 percent increase.
Brands such as Dell (DELL.O) and Lenovo (0992.HK), the world's No. 2 and 4 PC sellers, could face more pain mostly due to their reliance on sales to businesses, which have cut back their spending more sharply than consumers, said Gartner analyst Lillian Tay.
"They've already been shifting their focus towards the consumer space, but can they reform in time? Anyway, even consumer spending is seasonal, trending upwards only during the festive and back-to-school periods, which is not now," she said.
Shares in global leader Hewlett-Packard (HPQ.N) and Acer, both of which have a strong presence in the consumer sector, outperformed their benchmark indexes in 2008.
Downward revisions to 2009 shipment forecasts from leading data tracking firms IDC and Gartner were the first hint of problems in the system. Those were followed by analyst downgrades and reorganisation announcements by Dell and Lenovo.
The latest bombshell came last week, when top chipmaker Intel Corp (INTC.O) -- whose chips are the "brains" behind more than 80 percent of the world's PCs -- issued a revenue warning, saying demand for PCs was even worse than it feared. [nN07475140]
Q4 SLOWDOWN
PC shipment growth in the fourth quarter of 2008 is likely to be soft, as the global recession led both companies and consumers to cut back on an item viewed as a discretionary item for many.
Brands catering to corporate customers may be taking a harder hit than those chasing consumers with a wide array of low-cost computers, as companies reduce or delay new technology spending in the brutal economic slowdown, analysts said.
HP and Dell have both lost market share recently to consumer-focused competitors such as Acer and Asustek (2357.TW), both of Taiwan.
Last week, Lenovo forecast a quarterly loss as China's slowing economy hit sales, and said it will axe 2,500 jobs as part of a restructuring to cope with falling demand for computers. [nHKG82566]
Lenovo has also been hit by its purchase of IBM's (IBM.N) PC business in 2005, which focused on corporate customers.
As times get leaner, Acer and Asustek have scored success with a new category of low-cost notebooks, called netbooks, which many others initially dismissed.
With the dramatic slowdown in corporate spending, the big brands are also racing to focus more on consumers. Smaller players such as NEC (6701.T) and Sony (6758.T) have also embraced computers aimed at budget-conscious shoppers.
"Growth in the market has been in the consumer side, and Lenovo has been bogged down by their commercial business," said Bryan Ma, an IDC analyst.
"That's not to say they're doing badly, they're still great, but compare them to what Acer was doing on the consumer front and that's where you can see the difference."
But even consumer-focused names are beginning to hurt.
Asustek, widely credited with helping create the wildly popular netbook market, said last week it will miss its shipment targets for the fourth quarter of 2008 as it reported a 20 percent year-on-year drop in December sales. [nTP78827]
Many analysts say the current climate is too volatile to forecast a specific recovery. That could mean good news in the form of lower prices for consumers but bad news for PC makers who will see their already-thin margins erode further.
"The price of technology will always go down, that goes without saying," said Daniel Chang, a PC analyst at Macquarie Securities.
"But with demand so weak, if PC brands want to sell their products, they're going to have to depress their average selling price even further sometime soon."
It's a prospect many consumers at Taiwan's popular Kuanghwa computer mart are eagerly waiting for.
"I'm going to hang in there for a while more," said student Nick Chen, as he examined one of Asustek's newest releases: the Eee Top touchscreen-enabled desktop.
"If nobody's buying, they'll just have to cut prices even more."
(Editing by Doug Young and Anshuman Daga)
((kelvin.soh@thomsonreuters.com; +886 2 2508-0815; Reuters Messaging:kelvin.soh.reuters.com@reuters.net)) Keywords: PC SLOWDOWN/
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