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Consumer PC spending hits peak

After 1999, it's downhill all the way, predicts Forrester Research

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Report Expect tough times ahead, very tough times -- that's the warning a new report from market researcher Forrester Research has in store for PC vendors. Forrester prediction runs along these lines. Right now things are good, because although prices are falling fast, more and more consumers are buying their first PC to get online, and existing owners are upgrading and picking up extra machines for other family members. These kinds of buyers will this year drive a 17 per cent increase in shipments over 1998's figures, Forrester predicts. That said, revenue will grow only 2.1 per cent as PC prices continue to fall. Come 2000, consumer spending on PCs will begin to fall as new consumer electronics kit comes on stream to vie for household income. Forrester points to digital music players and intelligent set-top boxes, but you can add DVD recorders, next-generation games consoles and wireless personal digital assistants to the list. The upshot, says Forrester, will be a mountain of unsold Pentium III boxes and average selling prices 13 per cent lower than they were last year. So many homes will own PCs that are less than three years old, that most consumers will shift spending away from computers toward other devices. Still, there should be enough business out there willing to snap them up, assuming, of course, they're not all spent-out, post Y2K. The researcher's recommendation is essentially that PC vendors need to realise that consumers are buying PCs primarily for Internet access rather than for more traditional personal productivity applications. That means figuring out ways of cutting costs to make PCs competitive with cheaper Net access devices like set-tops and games consoles -- the boxes from Sega, Nintendo and Sony will all ship with some form of Internet access. In short, they need to do what Apple has been doing with the iMac -- produce consumer-friendly boxes that major on making Internet access quick and easy. Apple's own data suggests that over 80 per cent of iMac buyers are using the machine for Internet access. The Forrester report also notes a shift in power away from Intel and Microsoft toward Internet portals like Yahoo and Lycos, and AOL. The first two will lose out as falling hardware prices force PC vendors to seek out cheaper components while at the same time opting for cheaper system software -- you don't need a complex OS designed to host productivity applications when your box will only be used to access the Net, or so the theory goes. The report suggests PC vendors will need to expand beyond PCs to begin selling consumer electronics kit. Given that's what Dell, Compaq and Gateway are already doing, through various acquisitions of ecommerce companies, you wonder if Forrester is trying to predict what's already happening rather than make recommendations about how to survive once the consumer boom has peaked. Still, what the report does say is that that boom will peak, and it's going to happen real soon. You have been warned. ®

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