We have another rough couple of quarters ahead of us in PC and computer sales.  There are some things to take heed here which will come front and center for the sales and the market share gains and losses for Dell Inc. (NASDAQ: DELL), Hewlett-Packard Company (NYSE: HPQ), and even for Apple Inc. (NASDAQ: AAPL).  It lends some credence as to what may help Microsoft Corporation (NASDAQ: MSFT) on key Windows O/S sales and may give you more insight into why Intel Corporation (NASDAQ: INTC) has decided to finally move aggressively away from being so PC-processor-centric in its focus with its recent deals.  The good news is that the return of growth may arrive by the end of 2009, and this report is actually an improvement from what was seen just in May.

Gartner has issued a report calling the next two quarters as being “Two More Difficult Quarters.”  The IT-research firm expects that global PC shipments should reach 274 million units in 2009.  This is a decline of 6% from 2008.  The good news is that in May, Gartner was expecting a 6.6% decline for 2009.   Gartner now expects the PC market to post positive growth in Q4 2009, and believes a healthy market recovery will occur in 2010 with double-digit unit growth expectations of 10.3%.  This forecast is also much stronger than just in March when it felt as though the earth was standing still and Gartner was looking for more than a 9% decline this year.

Still, Gartner believes that it is premature to say that the market is recovering.  “Professional shipments” have continued to struggle and the growth in consumer units appears to be due to vendors and restocking inventories rather than an increase in demand.

For Q2 2009 and Q3 2009, the declines are expected to be around 10% year over year.  It is not until the Q4 2009 period that a return to growth is expected, so if the “less-bad” notion starts to go back into a much quicker double-dip in the recession levels then it is not hard at all to imagine that the expected return to growth could be put off to a further date.  But what we find interesting here is that the Q4 period for growth coincides exactly with the expected late-October launch of Windows 7 by Microsoft Corp. (NASDAQ: MSFT).

We have been watching how the”netbook” craze has kept unit sales from falling off the cliff much worse.  Ditto for the sub-$500 PC sales.  This is something we continue expect for some obvious reasons and some not-so-obvious reasons, even as the economy climbs out of the gutter.

Gartner called these netbooks the ‘Mini-notebooks’ and said the units remain on track to reach 21 million this year and 30 million next year.  The report also noted that mini-notebook units posted the first quarterly decline on a sequential basis in Q1-2009.

Mobile PC units should hit roughly 149 million units in 2009, a 4.1% gain over 2008.  The issue is that our fears about lower ASP’s, average selling prices, is still heading south.  Very south.  Gartner’s expectation is a decline of 12.8% in mobile PCs. This is a ‘ditto’ for Gartner’s expected desktop PC units coming in at an expected 125 million.  That desktop figure represents a drop of 15.7% over 2008.  And as for ASP’s there, Gartner put that figure at an expected decline of 26.6%.

Much of the  expected growth is from replacements.  The economy got in the way of many replacements and upgrades.  Gartner expects this to grow strongly in 2010 and 2011.  While we noted that the recovery for Q4 coincides with the Windows 7 launch, Gartner expects the launch to have only a very modest impact and it does not expect the market to significantly deviate from its normal seasonal trends just because of Windows 7.  Gartner even believes that the professional segment will delay the adoption of Windows 7 for at least a year as developers test and adjust the network applications.

As you can tell by the tone, this is not an all-good report.  But it is also not an all-bad report.  If the PC sector can boost those units then the hope will be that the sales of peripherals will benefit as well.  That may or may not be the case as most PC users can use the peripherals they already own.

Apple has been bringing its price-points down, but it still has a significant issue ahead.  Its ASP’s are much higher even with its new product launches.  The iPhone is becoming a ultra-mobile device in and of its own.  But for a desktop or even for a netbook, it is still a premium product.  The return of demand into Q4 and into 2010 is something we still believe ourselves that will be a price-oriented return of demand.  The army of unemployed is currently just under 7 million on an official basis.  The army of unemployed paired up with the underemployed and those working on contract or part-time rather than full-time is roughly twice that amount.  This may keep new buyer from paying too far up whether they choose an Apple or a Windows 7 PC.  You can still get into a Mac Mini for $599.00, but you won’t look as cool without the Apple monitors and peripherals.

Guess where Intel is headed with its new Nokia pact and its embedded systems integration acquisition of Wind River?  Yep, smaller and smaller PC’s and embedded processors and systems for much smaller computing devices (and non-PC applications for industries and other consumer devices).

This ASP decline at the same percentage rates cannot continue forever, but the PC has been in the process of becoming a utility device for some time.  The good news here is that 2009 may not be quite as weak for the PC sector.  And 2010 may be the year we return to growth.

Jon C. Ogg
June 25, 2009

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