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Is Xmas set to be a washout for PC makers?
Someone throw another smouldering laptop battery on the fire...

By Reuters

Published: Monday 06 November 2006

Computers may be the last thing left on the shelves this holiday season as the delayed release of Microsoft's Vista operating system, laptop battery recalls and other challenges dent US sales, according to analysts.

PC makers, such as Dell and HP, usually count on the year-end consumer spending spree to boost revenue but this year a number of factors are combining to dampen the holiday cheer.

Declining US home prices and slowing economic growth are tightening purse strings generally, analysts said. While a worldwide recall of nearly 10 million battery cells used in laptop PCs sold by Apple, Dell, Toshiba and others has led to shortages and potential shipment delays. The battery cells, made by Sony carried the risk of overheating.

Roger Kay, president of market researcher Endpoint Technologies Associates, said: "Microsoft having missed the holiday season for consumers is going to put a pretty good dent into spending by consumers for PCs."

Some PC makers and retailers are responding to the Vista delay by offering Microsoft-issued coupons for low-cost upgrades to the new operating system, and cutting computer prices to entice buyers.

But research company Current Analysis, which tracks weekly PC sales, estimates consumers will hold off buying high-end PCs until after Vista. It forecast 70 per cent of laptops sold this holiday season will be priced below $1,000, compared with 58 per cent a year ago and 38 per cent in 2004's holiday season.

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Samir Bhavnani, research director for computing and storage at Current Analysis, said: "We expect to see a lot of activity at the low end of the consumer side. A lot of the mid-tier and upper-tier customers are going to delay purchases until the first quarter of next year."

The number two contract laptop maker, Taiwan's Compal Electronics, which supplies brands such as Dell and HP, last week said demand in the fourth quarter is strong but component shortages, especially for batteries, will affect its output.

A Dell spokesman said the company's recall of 4.2 million Sony-made battery cells had not led to shortages. "We were pretty prepared going into the recall," he said.

Dell is offering free upgrades to Vista for buyers of systems with Windows XP Media Center or Professional editions, though there will still be shipping and handling charges.

Despite these kinds of promotions, industry indicators show PC demand is slowing and may not pick up for the holidays.

Demand for motherboards, the computer circuit boards that contain the microprocessor and memory "is falling off a cliff", Goldman Sachs analyst Henry King wrote in a research note last week. He cut his fourth-quarter motherboard shipment growth forecast to 8.8 per cent from 10.8 per cent in the third.

According to market researcher IDC, PC shipment growth slowed to 7.9 per cent in the third quarter, from double-digit percentage growth in the prior three years. The battery recalls may cut into fourth quarter growth, IDC said.

Bank of America on 31 October cut its 2006 PC growth forecast to 9.4 per cent from 10 per cent.