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Upgraders Now Drive the Market


Last year was grim for the PC business.

Sales not only have stopped growing, they actually have declined--an industry first. Although worldwide sales have fallen 4.8% this year, U.S. sales have dropped 11.2%, Gartner Inc. analyst Charles Smulders said. Notebook PCs fared better than desktops, with a 4.6% sales increase, but that's a fraction of notebooks' 26% growth in 2000.

The economy bears some of the blame for lackluster PC sales. But there's another reason. Most people who want a PC already have one. And they don't have compelling reason to buy a new one.

Face it, gone are the days of first-timers buying PCs so they too might experience the joys of Web surfing, e-mail and word processing. So, with first-time buyers in short supply, the market turns to folks who might be inclined to upgrade or expand their systems.

The PC business faces the same dilemma of any mature industry.

When was the last time you bought a new refrigerator? Probably when the old one broke. PCs rarely break. They do go through what Smulders calls "end of life," which, in the business world, comes when support costs get out of hand. On average, that's about 3.4 years for a desktop and 2.5 years for a notebook. Based on those averages, Gartner projects 2002 PC sales to be flat in the U.S. and to grow 4% worldwide.

Home PC users aren't compelled to buy replacement machines, which cost as much as major appliances. Consumers, especially during economic uncertainty, want to spend wisely. They are rightfully reluctant to buy something new unless they know it will improve their lives.

For a long time, the PC industry marketed on the basis of speed and power just as the auto industry once pushed cars on the basis of horsepower and performance. Both industries still do that to some extent, but most buyers are too savvy to spend money for speed they don't need. There was a time PC buyers salivated when Intel came up with a processor that was 30% faster than its predecessor.

Now, Intel and AMD are even more aggressive. I was impressed when Intel came out with a 2-gigahertz Pentium 4 in August only a year after it introduced its 1-GHz chip, but rapid innovation doesn't always translate into useful products. In the real world, PCs with that 2-GHz Pentium aren't necessarily any better, faster or more useful than their 1-GHz counterparts.

Like car buyers, PC users want reliability, ease of use and features that make the product more useful or more fun.

There are some cool things that might not have been available or affordable the last time most people bought a PC. Windows XP certainly is an improvement. So are flat-panel displays and recordable CD drives. But both can be added to existing systems. That may explain why monitor sales were up 18% over Thanksgiving weekend while PC sales were down nearly 9% compared with a year ago, according to NPD Intellect.

Sales of digital cameras and hand-held organizers--which are almost always used with a computer--were up 40% and 31%, respectively, a sign that people are seeking new ways to use their PCs.

The industry is starting to push home-video editing as a reason to upgrade to a new system, but few people have the time or patience to edit their own videos. In 2002, lots of machines will have drives that write DVDs. There are still competing standards, and blank discs are expensive.

2002 should be the year PCs come out with USB 2.0, a better and faster way to add external devices, and most new laptops probably will have built-in wireless networking. These are good reasons to think about replacing an aging machine, but none is the sort of killer app that whips up a buying frenzy.


Technology reports by Lawrence J. Magid can be heard between 2 and 3 p.m. weekdays on the KNX-AM (1070) Technology Hour. He can be reached at

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