Page last updated at 15:46 GMT, Monday, 2 March 2009

PC sales face 'worst-ever slump'

By Jason Palmer
Science and Technology reporter, BBC News

Less frequent replacement is just one aspect of the projected PC sales slump

The PC industry will see a decline of nearly 12% in 2009, analysts predict.

It would be only the second period of negative growth in the industry, after a slump of 3.2% in 2002.

The news follows an announcement that the semiconductor industry saw a 35% drop in sales of computer chips between 2008 and 2009.

However, analysts say the chip industry will weather the global economic storm better and rebound faster than the rest of the technology sector.

"The outside economic situation that we've seen deteriorating over the last few quarters is now directly affecting the PC market and we're going to see growth slump over the next year," said Ranjit Atwal, principal research analyst at Gartner.

The shift in the health of the market was a sharp one. European PC sales were at 20% in the third quarter of 2008; the fourth quarter saw a dive to just 4%.

In 2009, Gartner predicts, those numbers will plummet into the negative. They say that the global market will see 257 million PCs sold in 2009, a downward slide of 11.9% on 2008.

The market dive that occurred in 2001-2002, Mr Atwal said, was primarily from the corporate side of the market.

This time, both individuals and businesses are predicted to buy fewer PCs, hanging on to ageing computers for longer as part of general belt-tightening.

"The PC market is much more mature [as compared to 2002], and the PC is relatively more important to consumers," Mr Atwal said.

"But nevertheless, it's still a luxury item, it hasn't gone all the way that it's a necessity.

When things go wrong like this, the chip industry actually goes into full gear
Malcolm Penn
Future Horizons

"That means if your PC slows down, doesn't work well, doesn't do what you think it should do, you'll live with it."

Some facets of the PC industry are clearly on the up - such as mini-laptops and netbooks, which are projected to ship 80% more units in 2009 than 2008.

However, with just 8% of the overall market share they can't make up for the slide of the PC industry as a whole.

Weather storm

The semiconductor industry is also facing negative growth: from the third to fourth quarters of 2008, the industry slumped by nearly a quarter.

Printed circuit board
Computer chip makers may be better off than computer makers

However, the industry was already scaling back and through "purely good luck" may have not have been caught off-guard as badly as other industries, said Malcolm Penn, chief executive of semiconductor industry analysts Future Horizons.

The industry as a whole had been aiming to cut back on production, driving demand and making the industry more profitable when times were good.

"The only way you can do that is by controlling capacity; they had been investing more and more in capacity and getting less and less back for it," said Mr Penn.

"The chip industry has a very different cost structure; low marginal cost and very high fixed cost, so trimming back is actually quite hard. As long as you have a little bit of positive cash flow you can keep going."

With the timely arrival of a recession, the innovation cycle of semiconductor firms actually speeds up, he said.

"When things go wrong like this, the chip industry actually goes into full gear, doing what it does best - which is inventing itself out of the problem," said Mr Penn.

"This is a good time to restructure, to do the things that you never bother to do when things are humming along."

That means the next-generation of chips will come sooner, even if the market is such that demand for them only slowly creeps up.

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