Uh-oh, netbooks -- not Windows 7 -- will lift 2009 PC sales

Gartner is just full of bad news that will suck Windows PC manufacturers' thanks out of American Thanksgiving -- and Christmas along with it. Ho Ho Ho Ba Humbug. Today, the analyst firm predicted that based on fourth-quarter PC shipment estimates, for 2009, the market would grow -- but not because of Windows 7 -- and with deep declines in average selling prices. Combined, the latter two predictions spell lower profits for Windows PC OEMs and potentially overshipment of PCs for holiday 2009.

"We just don't see consumers buying new PCs solely because of Windows 7," Gartner research director George Shiffler said in a statement. "We are expecting a modest bump in fourth-quarter consumer demand as vendors promote new Windows 7-based PCs, but the attraction will be the new PCs, not Windows 7."

Microsoft and many of its PC partners were looking for Windows 7 to bring a big sales uplift during the holidays. Microsoft already got its big bang, recording in third quarter the highest quarterly sales ever for any Windows version. Strong OEM Windows sales make sense as PC manufacturers stocked store shelves for holiday sales.

Gartner predicts that globally 298.9 million PCs will ship this year, for a year-over-year increase of 2.8 percent. For 2010, Gartner predicts PC shipments will grow 12.6 percent year over year to 336.6 million units. But Gartner warned that 2.8 percent growth is by no means sign of a recovery, because of the weak year-over-year comparison. Holiday 2008 PC shipments stalled, as manufacturers pulled back inventory following the late-September stock market crash.

More disturbing, in what looks to be a long-term trend, rapidly falling average selling prices are pulling down the total value of the PC market. Gartner predicts a 10.7 percent year-over-year decline in 2009 to $217 billion.

"We don't see PC ASPs rising any time soon," Shiffler said in the statement. "As a result, growth in the market value of shipments will significantly lag shipment growth next year and beyond."

As I've complained all year, netbooks are a menace. Netbooks, what Gartner calls mini-noteboks, pull down ASPs and cannibalize notebook and desktop margins. According to NPD, US retail Windows portable PC ASPs fell to $519 in October from $558 in April and $659 in October 2008. Without netbooks, declines were less severe. By comparison, the Mac portable ASP was $1,410 in October.

Gartner predicts that of the 162 million portable PCs shipping in 2009, 29 million will be netbooks. For 2010: 41 million netbooks out of 196.4 million portable PCs shipped. Next year's netbook shipment gains will come with slower growth, but not enough to lift already sunken ASPs.

"Mobile PC shipments continued to get a significant boost from mini-notebooks," Shiffler explained, adding that "Mini-notebooks are facing increased competition from other low-cost mobile PCs, as well as alternative mobile devices. They are rapidly finding their level in the market, and we expect their growth to noticeably slow as early as next year."

But for holiday 2009, Windows PC manufacturers are looking at netbooks' continued ASP downward pull, even while Windows 7 looks to give only marginal lift to PC sales, if any at all. Meanwhile, Mac US retail laptop ASP was nearly $900 higher than Windows portables in October. Apple will be selling at top dollar and capturing higher margins, following another record quarter of Mac shipments. In third calendar quarter, Mac shipments increased 17 percent year over year to 3.05 million units.

Netbooks are only a part of the problem facing manufacturers and sellers of Windows PCs. The question: Did OEMs and retailers overstock? If the answer is yes -- as Asian component orders and high third quarter Windows 7 license shipments suggest -- retailers will have to heavily discount PCs to clear store shelves during the holidays. All while Mac pricing is expected to remain much higher.

The good news for consumers and retailers, according to Stephen Baker, NPD's vice president of industry analysis: "We anticipate very strong unit volume growth in the core tech categories like flat panels and notebook PCs." The bad news for retailers and PC manufacturers but potentially good for holiday bargain shoppers: "PC Pricing will be very difficult to maintain, and we expect to see aggressive pricing all through the holiday."

No thanks to Windows 7.

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