Tough times ahead for PC vendors

A third of major PC vendors will go out of business in the next three years as the PC industry suffers a severe vendor consolidation, industry experts have predicted.

According to Gartner, the double-digit PC shipment growth which vendors have been enjoying for the past few years is set to end as sales volumes and profit margins tail off.

The analyst firm expects PC unit growth to average 5.7 per cent annually from 2006 through 2008, half the 11.3 per cent average of 2003 through 2005.

PC revenue growth will average two per cent annually from 2006 through 2008, less than half the 4.7 per cent average of 2003 through 2005.

"With PC replacements still in full swing, 2005 should be a reasonably strong year for PC vendors," said Leslie Fiering, research vice president at Gartner's Client Platforms group.

"However, the end of the replacement cycle is likely to strain viability for even the largest PC vendors in 2006 and beyond."

The analyst firm noted that the top 10 worldwide PC vendors by unit shipment are Dell, HP, IBM, Fujitsu, Fujitsu Siemens, Toshiba, NEC, Apple Computer, Lenovo Group and Gateway.

Of these, only Dell has consistently been profitable in the past several years, Gartner research pointed out.

The study warned that the PC divisions of HP and IBM are "vulnerable to being spun off" if their drag on margins and profitability are deemed too great by their parent companies.

PC price competition is expected to intensify as vendors struggle to maintain growth in a competitive market environment characterised by weak replacement activity and the increasing significance of emerging markets.

"Global vendors will be forced to continue maximising supply chain efficiencies, and finally abandon any efforts to differentiate other than on price and service levels," said Fiering.

"Vendors that have yet to do so may attempt to diversify into related market pursuits, such as consumer electronics, to bolster margins. Others may attempt mergers with rivals to improve margins through economies of scale.

"Exiting the market may be the only logical choice for global vendors bleeding profits and struggling for share."