Holiday PC sales dip for first time in five years

LAS VEGAS Thu Jan 10, 2013 9:28pm EST

Guests are silhouetted at the launch event of Windows 8 operating system in New York, October 25, 2012. REUTERS/Lucas Jackson

Guests are silhouetted at the launch event of Windows 8 operating system in New York, October 25, 2012.

Credit: Reuters/Lucas Jackson

LAS VEGAS (Reuters) - Holiday-season sales of personal computers fell for the first time in more than five years, according to tech industry tracker IDC, as Microsoft Corp's new Windows 8 operating system failed to excite buyers and many instead opted for tablet devices and smartphones.

The slump caps a miserable year for PC makers such as Hewlett-Packard Co, Lenovo Group and Dell Inc, which saw the first annual decline for more than a decade with no immediate signs of relief.

It underscores an unspectacular launch for the latest version of the Windows franchise, which Microsoft is banking on to fight off incursions into the PC arena by touch-friendly devices such as Apple Inc's iPad.

"The sense is that until Windows 8 is fully installed and prices start to come down, we will be in this state of negative dynamics in the PC market," said Aaron Rakers, an analyst at Stifel, Nicolaus & Co.

Still, analysts warn against counting out Windows 8 -- the most radical change in the operating system in 20 years -- as consumers grow more comfortable with its tile-based interface and touch features.

In the past, a new operating system from Microsoft tended to stimulate a spurt of PC sales, but PC makers simply did not get enough attractive machines into the market, said IDC.

"Lost in the shuffle to promote a touch-centric PC, vendors have not forcefully stressed other features that promote a more secure, reliable and efficient user experience," said Jay Chou, senior research analyst at IDC.

This year could be better, he suggested, even in the face of talk about the death of the PC as tablets are on track to outsell full-featured machines for the first time in the United States.

"As Windows 8 matures, and other corresponding variables such as Ultrabook pricing continue to drop, hopefully the PC market can see a reset in both messaging and demand in 2013," said Chou.

PC makers sold 89.8 million units worldwide in the fourth quarter of last year, down 6.4 percent from the same quarter of 2011. That was slightly worse than expected by most, and the worst performance for more than five years, when the global economy shuddered to a halt and ushered in the worst recession since World War II.

For all of 2012, 352 million PCs were sold, down 3.2 percent from 2011. That was the first annual decline since 2001, according to IDC, in the wake of the tech stock crash and the September 11 attacks.

IDC is forecasting a meager 2.8 percent growth in PC sales for 2013.

"There's a lack of compelling reasons to upgrade," said Ashok Kumar, an analyst At Maxim Group, who said people are now waiting up to 10 years to replace computers rather than five in the past.

"Increases in performance have been smaller and there are fewer new applications that require more computing horsepower," he said. "In developing markets, the first purchase is not a PC, it's a smartphone, especially in markets where literacy levels are low."

NO MIRACLES AT CES

The numbers are bad news for Microsoft, which still provides the underlying software for nine out of 10 PCs but is suffering as Apple's iPad and other tablets eat away at the cheap end of the PC market.

Touch-friendly Windows 8 and Microsoft's own Surface tablet were designed to counter that shift, but the radical new-look software has not gripped consumers' imaginations.

"Windows 8 wasn't going to be as big a catalyst," said Shaw Wu, analyst at Sterne Agee. "It's so different, it's almost uncomfortably different from past Windows, and there's a risk that Windows 8 ends up like Vista."

Windows Vista, released worldwide in 2007, was Microsoft's least popular operating system with users in recent years.

Microsoft pulled out of the Consumer Electronics Show in Las Vegas this year, vacating its usual sprawling display area, but PC makers such as Asustek, LG Electronics and Samsung Electronics filled the gap with a dizzying array of big screen computers, lightweight laptops, tablets and combinations of those, all running Windows 8.

Many of the new models attracted jostling crowds on the show floor, like Panasonic Corp's 20-inch ultra-high-definition tablet and Razer's dedicated Edge tablet for PC gamers.

But none was hailed a show-stopper that might single-handedly turn around the fortunes of Windows.

"No single device will spur sales, it will take time for consumers to learn that Windows 8 even exists. CES will do little to change that," said Sarah Rotman Epps, an analyst for tech research firm Forrester. "Windows 8 is going to be a slow ramp, regardless of hardware quality."

Microsoft says it feels good about the progress of Windows 8, as sales hit 60 million this week after 10 weeks on the market. That is in line with Windows 7 three years ago, and well ahead of Vista, which took 100 days to reach 40 million sales.

Tami Reller, chief financial officer of Microsoft's Windows unit, said sales of Windows 8 PCs may have been held back by shortages of the most popular touch-screen machines.

"The level of demand I think surprised a lot of people. And frankly, the supply was too short," said Reller at an analyst presentation at CES this week.

Microsoft is looking to juice that demand further this month with its new Surface with Windows 8 Pro, a tablet running an Intel processor that is fully compatible with Office and traditional PC programs, unlike the first Surface it launched last year based on an ARM Holdings-designed chip.

Despite that bullishness, analysts have been edging down their earnings expectations for Microsoft lately.

"Win 8 is disappointing, the PC market will remain weak for awhile and margins are likely capped," said Morgan Stanley analyst Adam Holt on Thursday, as he downgraded the stock to 'equal-weight' from 'overweight'.

Investors are also nonplussed, driving Microsoft's shares down neraly 20 percent since last March, even as the Standard & Poor's 500 has marched upward to a five-year high this week. The shares are down 6 percent since the launch of Windows 8 on October 26.

(Additional reporting by Poornima Gupta, Miyoung Kim, Timothy Kelly, Sinead Carew and Noel Randewich in Las Vegas, and Alistair Barr and Alexei Oreskovic in San Francisco.; Editing by Gary Hill and Steve Orlofsky)

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Comments (7)
Dichotomous wrote:
Maybe its due to the lack of customer service from most tech companies (that sector regularly ranks among the worst). Especially Dell. If you run into problems with Dell – and all of their customers do – Dell’s approach is to ignore you until you get so frustrated you just go away. They are slow to refund your money, too. I’ve been fighting with them since December 19th and I have never received a single email or phone call from the company. I never even received the computer I was going to order. They’ll just intercept your order without telling you, block you from getting on their message boards to share your experience, delete any comments you might be able to posts (if you’re smart enough to work around their blocks) and will hold your money until they decide to give it back. This even though I’ve gotten my bank involved and sent complaints to the state attorney general’s office. I ended up getting a much better computer, custom built locally, and saved 250.00 in the process.
Business owners tend to forget that their products are not why people do business with them – customer service is.
Oh yeah, and Windows 8 is far from thrilling. It’s not what most people are looking for. Microsoft should try fixing what they have before trying to re-invent themselves.

Jan 11, 2013 9:00am EST  --  Report as abuse
mohamedmohsen wrote:
I see none of the manufacturer have a sexy ultra book windows 8 touch screen with big enough ssd sized and with HD resolution screen! to compete with Ipad feelings

Jan 11, 2013 9:04am EST  --  Report as abuse
momo51 wrote:
Why people want to smudge their main computer screen with their fingers is beyond me. Mine is pristine clear and essential for day to day use. The whole “touch” nonsense for pc was a silly attempts to bring the cellphones success to a device which is not suited for that kind of interface. As for tablets, they are living room toys for quick mail/web use. There is no way weak a 10 inches screen tablet will replace a 24 inches versatile and powerful home PC. It is just that because PC now last so long that people crave for anything new, whatever it is better or not.

Jan 11, 2013 10:19am EST  --  Report as abuse
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