Once mighty PC makers succumb to slowdown

By Kelvin Soh

TAIPEI (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, 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 and Lenovo, 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 toward 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 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 reorganization announcements by Dell and Lenovo.

The latest bombshell came last week, when top chipmaker Intel Corp -- 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.

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.