Merrill Lynch has depicted a PC industry experiencing climbing volumes but suffering tailspinning pricing and margins.
The firm's research revealed that average unit prices will slump. In 1999, the industry will see a drop of 11.5 per cent; in 2000, there will be a 12.1 per cent fall; 2001 will see an 11 per cent slide and there will be a 10 per cent fall in 2002.
The price slump will occur despite increasing sales of higher margin products such as notebooks, servers, and workstations, lower channel inventories and the more settled component market. The drop in prices will be largely due to an increase in low-cost PCs.
Steve Fortuna, PC analyst at Merrill Lynch, stated that because of the developments, current profit levels would be difficult to maintain despite an increase in sales.
This yeat, global PC unit sales will increase by 20.8 per cent, with revenue growth of seven per cent. In 2000, unit sales will increase by 17.4 per cent, with revenue growth of 3.3 per cent. There will be a 14.4 per cent rise in unit sales in 2001, with revenue growth of 1.8 per cent.
And in 2002, unit sales will increase by 12.5 per cent, with revenue growth of 1.3 per cent.
"Europe's growth should benefit from robust corporate spending, driven by the need to catch up with the US, as well as an increase in consumer sales spurred by the influx of low-cost PCs, the internet and an improving communications infrastructure," said Fortuna.
Commenting on the battle between direct and indirect vendors, Fortuna said: "The competitive position of the indirect vendors has improved over the past 12 months and represents an incremental gain against the direct model. Compaq, IBM and Hewlett Packard have become more price aggressive, to the point where we believe there is no material difference in pricing.
But direct vendors should be able to generate higher profitability."
He added industry consolidation would continue, with the top five players, Compaq, Dell, Gateway, IBM and HP, controlling 59 per cent of the market by 2002. They controlled 41 per cent in 1998.
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