IDC 2007 1/4Q PC market

Attracted by aggressive prices and the launch of Microsoft Corp.'s Windows Vista OS, consumers purchased more notebooks during the first quarter than expected, pushing IDC to raise its 2007 PC industry forecast.

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The PC industry is set to ship 256.7 million units in 2007, marking 12.2 percent growth over the previous year. IDC had previously forecast a growth rate of 11.1 percent and shipment volume of 254.2 million.

The primary engine of growth was a 28 percent jump in first quarter notebook shipments compared to the same period last year, a faster pace than the 25 percent increases seen in that segment for the past three quarters.

The demand for notebook PCs was surprising compared to a continuing slump in the commercial desktop market and drooping forecasts for enterprise purchasing in the U.S. through 2009, said Loren Loverde, program director for IDC's Worldwide PC and Mobile Phone Trackers.

However, after a successful 2007, IDC forecasts the PC market to grow more slowly in coming years, with shipments rising 10.8 percent in 2008 and 8.7 percent in 2009.

One reason for the slowdown is that the PCs being sold today have enormous processing capacity, thanks to the use of dual-core and quad-core processors from vendors like Intel Corp. and Advanced Micro Devices Inc. (AMD). Modern PCs also have much more storage capacity and graphics processing capability than last year, in order to handle the demands of running Windows Vista and playing digital media.

Together, that means users are likely to delay replacing their current computers for a longer time than in the past, especially in developed industrial countries like the U.S.

"Current systems are fairly powerful and meet current processing needs, so systems are lasting longer than in the past," Loverde said. "I wouldn't say that developed markets are all full, but penetration is relatively high... Volumes continue to increase, but at a slower pace."

One downside to the spike in notebook sales is that PC vendors and their suppliers are paying for the volume increase with lower price tags. Compared to the 12.2 percent forecast growth in unit shipments, IDC says PC industry revenue will grow only 7.4 percent. Global revenue for x86 servers, desktops and notebooks will rise from US$230.1 billion in 2006 to an estimated $247.2 billion in 2007, IDC said.

Intel and AMD have watched their earnings erode in recent quarters as the result of a price war for microprocessor market share. That move has helped to depress the entire global semiconductor market, according to a report from Gartner Inc. in May that reduced the forecast for 2007 revenue growth to just 2.5 percent over 2006, down from an original expectation of 6.4 percent growth.

Hard-drive manufacturers are feeling the same squeeze, according to another report released Wednesday. The hard disk drive industry saw its profit margins drop fast because of the impact of sinking sales prices, according to iSuppli Corp. Even the fast growth of notebook PC sales did not help, because vendors cut their own prices to compete for the business, hurting the bottom line at Seagate Technology, Western Digital, Hitachi Global Storage Technologies, Samsung Electronics, Fujitsu and Toshiba.

Still, the market could rebound in the long run, thanks to brisk growth in developing countries and a slow-and-steady adoption of Vista-capable PCs in the business world.

"The market is growing double-digits, which is pretty good-- even if not as fast as it once was," Loverde said.