Sales of portable computing products, such as the iPaq Pocket PC from Hewlett-Packard, are growing faster than those of desktop systems, which make up 70% of the market.
According to David Daoud, senior research analyst with business research firm IDC, solid growth in Q4 2003 sustained the market's recovery from declining shipments in 2001 and 2002. Overall growth was just slightly above expectations, with demand for notebooks and other portable products slightly weaker. Says Daoud, "The market remains cautious, with no significant change in the long-term outlook. Consumer growth also met forecasts, but slower adoption of portables and a hint of short-term price pressure have shifted growth during 2004 further into the second half of the year. We continue to expect double-digit shipment growth for 2004 and 2005, although the outlook for the United States and Japan is slightly weaker, with Western Europe picking up the slack."
PC and peripheral OEM sales figures are a good indicator of the upward trend. Catalogued in Business Week's Corporate Scoreboard (Feb. 23, 2004), sales for the Computers and Peripherals segment show a 14% annual increase from 2002 to 2003. Most PC makers were up during this period as well, with Apple Computer posting a 15% rise, Dell up by 18%, and Hewlett-Packard boasting a 29% increase. Only Gateway and Sun Microsystems, down 18% and 8% respectively, were not on board. Printer and peripheral OEM Lexmark posted a 9% gain.
A report issued in June, IDC's Worldwide Quarterly PC Tracker, indicates that growth will continue, with PC shipments globally projected to grow by 13.5% in 2004, bringing the market size to more than 175 million units (see chart). Growth rates for 2005 and subsequent years are forecast to rise more slowly, with shipments expected to grow by nearly 11% in 2005 and about 8% annually from 2006 to 2008.
Further, the report noted that wireless capabilities, falling prices, and the growing need for mobility have increased demand for notebooks; however, "many buyers remain price sensitive and continue to evaluate the benefits of mobile computing," says Loren Loverde, director of IDC's Worldwide Quarterly PC Tracker. "Portable PCs continue to grow much faster than desktops, but recent results demonstrate the continuing competitiveness of desktop systems."
PC Tracker data show worldwide shipments of desktop PCs grew by 13.4% year-on-year in Q1 2004, up from 9.6% in Q4 2003, while Q1 growth in portable PCs slowed to 28.5% from more than 35% in the second half of 2003. Desktops continue to represent more than 70% of worldwide PC shipments, and their strong growth helped boost growth expectations for total PC shipments in 2004.
There appears to be a slowing of the trend in effect two years ago, that of molding projects for computers and peripherals moving to low-labor-cost areas such as Mexico and China. According to Henry Beck, president of Tessy Plastics Corp. (Elbridge, NY), the firm's major customer, Xerox, continues to source molded parts made at one of Tessy's three U.S. facilities. However, higher-volume programs and those with large amounts of manual assembly required are being produced at Tessy's Shanghai facility.
Beck says, "Items such as toner cartridges, which have high volume and assembly requirements, are molded in China. Other molded parts for copiers and related equipment are produced in the U.S. Economies here are still sufficient that we can be competitive with our products. We develop products with Xerox here, and many of them are also molded here." He believes that the flight of jobs to lower-cost manufacturing sites worldwide has slowed to the point where business is now fairly stable.
At Mack Molding, opinions are somewhat different. Northern Div. president Jeff Somple explains that most molding done by contract manufacturers for this market is now in China; he sees U.S. molding programs diminishing.
Other contract manufacturers such as Flextronics, Solectron, and Jabil Circuit had a mixed bag of results in 2003. While Flextronics' sales were up 7% for Q4 2003 over the same quarter in 2002, Solectron posted a mere 1% increase for the same two periods. Jabil Circuit, on the other hand, not only rang up a 41% Q4 rise, but it also posted a 39% increase for the whole of 2003.