IDC: Economic crisis will kill off some PC makers

Analyst predicts that 2009 through 2011 will see consolidation in PC market

With credit in a tight squeeze and the economy in free fall, the next few years should see the collapse of some small US PC makers and a restructuring of the rest of the industry, according to an industry research firm.

Richard Shim, personal computing research manager at IDC, told Computerworld that he expects a consolidation of the market. However, he doesn't think that the big PC players, like Hewlett-Packard, Dell and Acer, will gobble up smaller hardware vendors. Instead, he said those smaller players will simply fold up shop as the faltering economy keeps companies and individuals from buying new computers.

"It won't be so much about acquisition but the smaller players will just go away," said Shim, adding that he thinks the industry could lose fewer than 10 companies. "The big players are feeling the hurt as well. Right now, everybody is beating each other up in price. If some are going to die off anyway, what's the sense in buying them?"

Just yesterday, IDC reported it is projecting that worldwide PC sales will quickly drop off because the sagging economy is causing people to hold onto their savings while credit is unavailable. IDC noted that it expects PC shipments to inch upward by 3.8 percent in all of 2009, but added that the values of those shipments will drop by 5.3 percent. In the US, expectations are bleaker as IDC predicts that shipments here will decline by almost 3 percent in 2009 with low single-digit increases in the next few years.

Shim noted that he thinks MPC kicked off the consolidation early in November when the PC maker filed for bankruptcy. In mid 2001, the business was sold by parent company Micron Technology, and later changed its name from Micron Electronics to MPC. A little more than a year ago, MPC bought Gateway's professional business division.

And MPC won't be the only mid- to low-tier PC maker to fall, according to Shim. He said 2009, 2010 and maybe even 2011 will be tough years for the industry.

Just a few weeks ago, iSuppli slashed its 2009 growth forecast for worldwide PC shipments by nearly two-thirds because of the deteriorating economy. The analyst firm is now projecting that worldwide PC shipments will rise by 4.3 percent in 2009, down from its previous forecast of 11.9 percent growth. ISuppli also adjusted its expectations for 2010, dropping its initial prediction of 9.4 percent growth to 7.1 percent.

ISuppli's adjustment to its PC forecast came on the heels of the firm downgrading its estimates for global semiconductor revenue for the year. The researcher projected that 2008 semiconductor sales will decline by 2 percent to US$266.6 billion, from about US$272 billion in 2007. In October, ISuppli had predicted that 2008 semiconductor sales would grow by 3.5 percent over last year's. The researcher also predicted that the negative momentum will continue into the fourth quarter of this year, with the overall market expected to drop by 10.9 percent compared with the same quarter last year.

Shim noted in an interview on Thursday that the economic crisis likely will reset many vendors' business models.

"If you change selling prices, you need to find new ways to do business, like skimping on quality or coming out with new models," he explained. "A lot depends on how drastic the situation gets."

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