Businesses to profit from PC market woes

A couple of weeks ago, Dell founder Michael Dell seized back control of the company he founded 23 years ago in an attempt to revive flagging fortunes.

Once the darling of the PC world, the company has lost market share, its stock price has declined, and the pressure was on for former chief executive Kevin Rollins to go.

But Dell’s return to the helm may not be enough to stop the rot, and the organisation could simply be the latest victim of a changing market.

Figures from analyst Gartner reveal that for the second consecutive quarter, HP was the number one vendor based on worldwide PC shipments. While HP saw its share rise by 23.9 per cent to 17.4 per cent in the fourth quarter of 2006, Dell’s shipments decreased 8.7 per cent, to 13.9 per cent.

Commoditisation of the desktop means that although 239 million PCs were sold internationally in 2006 – a 9.5 per cent increase on 2005 – plummeting prices are having an negative impact on profits.

Mark Margevicius, vice president and research director at analyst Gartner, says PC manufacturers are facing an increasingly difficult climate.

‘There is incredible financial pressure on the market today. Business is booming with emerging markets in Asia and Africa, but 10 years ago, profit on a PC was 30 per cent. Today, it is a thin margin of between two and four per cent,’ he said.

‘Any miscalculation on components, the supply chain or delivery channel can mean profits are eaten up.’

A further pressure on vendors is the growing popularity of thin-client technology. David Bradshaw, principal analyst at Ovum, says PC demand is dwindling.

‘Most business applications do not run in client-server mode; the major exception is SAP,’ he said. ‘For example, Oracle applications have a web front end where the computer will be a glorified thin client, so businesses can make do with a lower specification PC on the desktop for longer.’

Bradshaw says a nightmare scenario for PC vendors is businesses choosing something that looks like a thin client and runs in a small box with no hard disk, essentially just a flash drive.

Even the launch of Microsoft Vista is unlikely to see companies rushing to purchase high-spec machines. While this makes gloomy reading for PC firms, it is good news for business users.

‘The upside is that businesses have a strong bargaining position,’ said Bradshaw.

‘All the big vendors are having trouble and they all have to address the cost of managing the desktop, which is several times the cost of buying PCs.

‘For PC vendors to succeed, they will have to work on cost of ownership strategies and not leave it to other parties,’ he said.

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Further Reading:

Dell plots way forward

Thin-client hardware sees strongest growth since 2000

Virgin thin-client offers fat returns