Computer sales continue slide south

The PC market has hit the proverbial brick wall and resellers seem to be the meat in the sandwich as vendors slash prices to clear inventory following a disastrous Q4.

Latest figures from Gartner's Dataquest show what the channel has known for months - sales plummeted in the fourth quarter last year, down 18 per cent over the previous period.

IDC figures also show a marked downturn - around 10 per cent compared to Q3. And the slide looks set to continue.

"The market is doing it tough, and Q1 is not going to get much better," said IDC analyst Logan Ringland. "There's a lot of stock in the channel and that will nullify a month's worth of sales."

With so much inventory, vendors are slashing prices to move stock. But the move is having little impact on sales.

The reason, according to Gartner analyst Andy Woo, is due to a general economic slowdown which saw many companies clamp down on their IT spending. Consumers also shied aware from the usual Christmas splurge.

Harvey Norman computers and communications general manager John Slack-Smith summed it up succinctly. "Christmas was flat," he said. "People were buying lower dollar gift-giving items, like peripherals and software. They just weren't buying computers."

Notebooks and PCs have been equally hard hit. Director of Toshiba reseller Axon Computers, Rodney Con Foo, believes the downturn is the worst he has seen since the 1991 recession.

"The market has been pretty tough, especially the commercial side," he said. "Since October, when the BAS became due, all the money has come out of the market. We have almost talked ourselves into a recession."

Axon has trimmed back all of its budgets 10 to 15 per cent for the first half of this year, in an effort to ride out the decline.

"Resellers make most of their profits in the first half of the year, so if things don't pick up, they are going to be down 75 per cent on their yearly profits."

Even those who did reasonably well last quarter report a drop off in business. "The last quarter was OK for us - we did have signs of growth - but the new quarter has slowed down," said assistant sales manager at Octek, Michael Turjman. "The PC market in general is suffering, especially the distributors."

However Niels Kofahl, director of distribution company Tecksel, said sales in specialised notebook products are actually up.

"We are selling ruggedised notebooks and they don't really compete with the Toshibas," he said. "In this sector, notebook sales have been very buoyant. We haven't seen any vendor price drops and any that we might see would not be based on inventory, but because of the strengthening dollar."

According to Gartner, smaller PC vendors and assemblers remain the hardest hit by the downturn, while larger companies such as Compaq, IBM and HP have managed to increase their market share on 1999 figures for the quarter.

Gartner attributes the downturn to a number of factors - the weak and fluctuating Australian dollar, the lingering effects of the Olympics and a slowdown of the US market. Even rising petrol prices seemed to have taken their toll.

Despite the doom and gloom of the market place, IDC's Ringland said Q2 sales were likely to be "reasonably Okay", refreshed by new product lines and a cleared inventory. Resellers and retailers alike are looking to put it all behind them and get on with business.

"I am looking forward to a consistent, regular retail year," said Slack-Smith. "Give me some sense of normality!"

But there remains one idiosyncrasy which has yet to make its presence felt - the upcoming Federal Election.

"Growth depends on when the election is," he warned. "But at the end of year, the market is back into the three-year replacement cycle and things should even out."

The SME and home market remains the bright spot, driving positive growth for the next quarter, particularly in the Asia-Pacific (APAC) market place.

Photograph: IDC analyst Logan Ringland.