Despite market optimism early in the fourth quarter, the pace at which the economic environment unraveled and the extent to which PC purchases were affected was faster than anticipated. Following roughly six years of growth, with the last five averaging 15 percent increases, worldwide PC shipments were down 0.4 percent year on year in the fourth quarter of 2008, according to IDC's Worldwide Quarterly PC Tracker. The dramatic slowdown was enough for a sequential decline of 2.5 percent from the third quarter in place of an expected increase for the holiday season.

The weakening economic environment, including falling home and stock values, deteriorating credit, and implications for trade and consumer spending, was clearly the dominant factor limiting growth. Low-cost portables, vendor competition, and holiday promotions were simply not enough to overcome the economic tide, even with the market for mini notebooks (also known as netbooks) taking off. Growth of portable PCs was cut roughly in half from nearly 40 percent year on year in the first three quarters of 2008 to roughly 20 percent in the fourth quarter. Meanwhile, the pressure on desktop PCs pushed volume down roughly 16 percent from a year ago after only a small decline earlier in the year. Mini notebook volume is estimated at near five million units in the fourth quarter, bringing the total for 2008 to about 10 million, accounting for nearly 7 percent of total portables, with shipments expected to double in 2009.

Despite the dramatic slowdown in fourth quarter shipments, annual volume was up 10.5 percent in 2008. This was on par with 2006, when some vendors struggled with the accelerating transition to portables and replacement rates dropped with economic uncertainty and the pending launch of Vista.

"For all that's been said about this recession being different than 2001, the drop in PC growth from mid-teens the preceding year to near flat growth in the most recent quarter shows that the impact of this crisis looks similar to the last time around," said Loren Loverde, program director for IDC's Worldwide Quarterly PC Tracker. "It is tempting to argue that international markets will be less affected, or that low prices and the transition to portables will limit the impact, but the market has taken a serious hit and the competitive environment along with a race to low-cost portables could easily undermine profits from mobile computing. I won't be surprised if recovery gets pushed further into 2010 as this crisis unfolds."

Doug Bell, research analyst, United States Quarterly PC Tracker said, "As expected, demand for PCs in the U.S. faced a challenging environment, with a substantial reduction in spending among both consumer and commercial segments amid tightening credit, eroding confidence, and growing unemployment. Not only unit growth was constrained, but the value of the market also shrank as a result of competitive pricing and the introduction of lower-priced mini notebooks," he said. "Unfortunately, the first half of 2009 looks pretty shaky as the economic fundamentals need to recover before spending on PCs will resume."

Regional Outlook

·       United States-While the United States came in below expectations, the change in growth from the first three quarters was not as dramatic as in other regions. This reflects relatively slow growth early in the year and the unexpected speed with which the financial crisis spread to other regions. Tighter budgets across segments were evident in a 16 percent decline in Dell volume, and a decline of 3 percent from HP. Nevertheless, the next three vendors (Acer, Apple, and Toshiba) all managed year-on-year gains with growth in portables.

·       Europe, Middle East, Africa (EMEA)-PC market growth slowed to single-digits, but remained positive despite the global recession. As anticipated, Portables remained a key market driver with growth of roughly 25 percent despite slowing from previous quarters. Portable PC adoption continued to be fueled by consumer demand in the run-up to Christmas and the strong vendor and telco push of mini notebooks. Nevertheless, the desktop market contracted further, with continued cannibalization from portables and a slowdown in business renewals.

·       Japan­-The Japanese market was fairly resilient, coming in slightly above projections and ahead of 3Q08 growth. Desktop volume declined notably, but portables compensated. The global credit crunch put some pressure on spending, but a relatively stable economy and strong currency helped drive growth along with strong mini notebook shipments.

·       Asia/Pacific (excluding Japan) -Economic pressures had a significant impact on China and India in the fourth quarter while channel issues added to the challenges in India. Other countries in the region also faced challenges including disruptive politics and exchange rates. More cellular operators started to provide mini notebook bundles, but the results of this have been mixed and were unable to sustain shipment volume in the region.

Vendor Highlights

• HP managed to stay ahead of the market with single-digit growth and easily held the top PC vendor slot this quarter. Weak sales in Asia/Pacific (excluding Japan) and the United States weighed down worldwide growth, although EMEA and Japan saw resilient double-digit increases, even with the grim economic environment. HP's lead in PC shipments will likely help the company continue to weather the economic downturn.
• Dell had disappointing results in the United States and EMEA, with a significant drop in U.S. volume. The news was softened by across-the-board growth in emerging markets with additional growth from mini notebook shipments in Japan. Expanding mini notebook SKUs across the price spectrum should continue to enhance Dell's position in the market.
•  Acer-Efforts to penetrate the retail channel helped Acer significantly increase shipments in the United States despite competitive and economic pressure. Although pressures are likely to increase, the broader channel coverage and expanded low-cost offering should help the company grow. Nevertheless, Acer saw growth in core European markets slow quickly in the fourth quarter, particularly in emerging markets of Central Europe, Middle East and Africa (CEMA).
• Lenovo's struggles reflected the softening worldwide economy as the company announced aggressive restructuring and layoffs moving into the new year. Several mature regions saw year-on-year growth decline by double-digit rates, although Lenovo limited its losses with only single-digit declines in EMEA and its home turf in Asia/Pacific. The company had some recent successes with double-digit growth in Latin America and expansion into the server market using IBM licensed technology.
• Toshiba saw overall growth near 20 percent with solid growth in all regions except APeJ. The company continues to benefit from its portable focus, and outpaced worldwide portables growth in the fourth quarter

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