PC demand takes off ahead of Windows 7

Manufacturing activity is brisk and shortages are emerging for a number of components

People are snapping up new desktop and laptop PCs long before the launch of Windows 7, a sign of strong demand in the market, analysts say.

Demand for PCs improved in July and August, which is "something special, because the expectation was that many people would delay purchases until after Windows 7 came out in October," said Manish Nigam, head of technology research in Asia for Credit Suisse, at a technology conference in Taipei.

Consumers often wait until after the launch of a major new operating system to buy a new PC for fear of having to pay for the upgrade and to avoid the hassle of loading the new software themselves. This time, strong marketing for free or discounted Windows 7 upgrades for new PC buyers ahead of the official launch of the OS on Oct. 22 appears to have worked.

There were also fears the global recession might continue to affect PC demand.

PC shipment growth declined for six straight months, from the beginning of the fourth quarter of last year through the end of the first quarter of this year, iSuppli said in a report last week, as the global financial crisis slammed world markets. Sequential growth returned in the second quarter and will continue for the rest of this year as the global economy continues to recover and Windows 7 launches, the market researcher said.

The advertising blitz for Windows 7 "will be a major positive for the PC industry," iSuppli said.

Hype for the new OS, which won solid reviews from many people who tested it, and lower prices for PCs are already drawing buyers.

PC shipments in August beat expectations at investment bank Merrill Lynch by 3 percent, as laptop PC demand picked up in Europe and sales remained brisk in China, the bank said in a report on Tuesday.

The investment bank remains positive about the PC sector due to strong sales by Taiwanese manufacturers and healthy inventory levels. Taiwanese companies build a large number of the world's PC components and own most of the PC assembly factories in China.

Business has been so strong in recent months that shortages of a number of components have become troublesome, including LCD screens, laptop batteries and chips such as DDR3 (double data rate, third generation) DRAM.

Indeed, Converge, a chip and component distributor, says shortages have also emerged for a number of key microprocessors. The rising demand suggests the peak season for PC manufacturing has arrived and it appears healthy, Converge said in its monthly newsletter. The company warned that the shortages will increase prices.

Increased costs for PC vendors may not translate into higher prices for consumers, however. The global economy remains weak, and companies continue to offer deals to entice people to buy new desktops and laptops.

The value of global PC shipments dropped 19.1 percent in the second quarter, market researcher IDC said on Wednesday, although the number of PCs shipped declined just 2.4 percent. The researcher attributed the fall to people favoring low-cost devices such as netbooks.

The big question mark for the PC industry is when corporations, which account for nearly 60 percent of PC shipments, will start replacing aging fleets of computers.

Executives in charge of replacing PCs are more finicky about major OS upgrades than consumers. Decisions they make about new software will affect thousands of computers that they have to maintain. Many are also mindful of how unpopular Microsoft's last OS, Windows Vista, was. The OS launched in early 2007 to great fanfare that quickly turned to disappointment. Customers complained about a number of issues, from clunky performance to missing hardware drivers. Some people even opted to downgrade back to Windows XP.

The problems Vista faced make the transition to Windows 7 potentially slower among corporate users. Analysts expect them to wait until Windows 7 has been on the market for at least several months and Service Pack 1 has been published before adopting the new OS. That means PC purchases by corporations probably won't begin until the middle of next year.

Credit Suisse's Nigam believes U.S. corporations may lead the rebound in PC buying next year, noting capital spending hit its lowest level in years at the depths of the financial crisis, even worse than after the dotcom bust.

The investment bank forecasts a 12 percent increase in corporate PC purchases next year based on surveys with corporate IT managers. Such an increase would likely make PC vendors happy, but it could hurt consumers through potentially higher PC prices, considering the shortages already hitting some PC parts.

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Dan Nystedt

IDG News Service
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