PC Market Outllook – Grim

The PC market for 2009 is headed to its first unit decline since 2001.

With the global economy headed into depression, it seems to me there is a strong likelihood that  the churn of the installed PC base will change with new economic realities. Forecasts by outfits like Gartner Research and IDC made late last year are obsolete, with deteriorating economic conditions outpacing recent forecasts.

According to Gartner Research, there are something like 1.13 billion PCs in use around the world:

Pic courtesy of Gizmag

Gartner estimates that about 16% of the installed base (180 million PCs out of 1.13 billion) will be replaced during 2008. I doubt that 2009 will see the same replacement rate as harsh economics takes hold. While Gartner forecast unit sales to increase 5% from 297 million units in 2008 to 312 million units for 2009, the probability that unit sales will decline perhaps by as much as 10% – 15% is not all that far fetched. Note that without netbooks, unit sales would show a decrease.

If we take Gartner’s replacement rate as a fairly accurate estimate, this means that net new sales adding to the installed base during 2008 amounted to 117 million units – to recap, 180 million due to replacement and 117 million net additions to the installed base.

Let’s get real – the replacement rate is going to go down and net new additions are going to fade as well. With the installed base so large, any downward shift will have huge implications for demand. If we decompose Gartner’s 2009 forecast of 312 million units, I would estimate about 123 million units due to net new demand and 189 million units due to replacement.

If the replacement rate drops just a couple of points, replacement demand drops to about 150 milllion units – a drop of 39 million units for a 2009 forecast of 273 million total units. Compared to 297 million units for 2008, this is an 8% drop in total shipments.

This is without altering new new additions – any drop here will further deteriorate the outlook. It is not inconceivable to see PC unit shipments declining by double digits – a 15% decline is not unreasonable considering the hemorrhaging economic outlook, and that may turn out to be on the high side.

Netbooks – the only “bright spot” – really is not all that bright for PC manufacturers. Low cost is a big driver, and low cost means low margins in absolute terms.

Further, while netbooks will increase in power, the OS of choice is most likely one that will not require lots of horsepower – XP as long as it is available, emasculated Windows 7 from Microsoft and maybe more Linux that you might expect. Microsoft should benefit as upgrades from XP to Windows 7 take place at the enterprise level, but don’t expect this much before the end of 2009.

Talk me out of it, but I don’t see much to cheer about this year except that price pressures will benefit new PC purchases, IF you have the cash.