Even as PC sales continue double-digit growth, industry revenue is likely to decline 2.5 per cent to $198.5 billion in 2006, according to a forecast released on Friday by Gartner.
Worldwide PC shipments are scheduled to rise 10.5 per cent over last year, reaching 233.7 million units.
The disparity comes because PC vendors have been slashing the prices of desktops and notebooks as they hustle to compete with each other. Another force pushing computer prices down is a series of recent price cuts by Intel and Advanced Micro Devices on their processors, the most expensive part of a PC.
Now, as the holiday sales season approaches, things could get even worse for vendors like Dell and Hewlett-Packard. In additional to wrestling with each other, they will also have to compete with consumer electronics companies, said George Shiffler, a research director at Gartner.
Shoppers have a limited number of dollars to spend on electronics. That spells trouble for PC vendors since the price of a low-end desktop is comparable to a smartphone and its accompanying service contract, he said.
Flat panel TVs will also compete with PCs, since excess production capacity has lowered LCD (liquid crystal display) prices and producers are expected to cut prices further with aggressive holiday discounts. Even Microsoft's impending launch of the new Vista OS will produce only a temporary rise in sales, Shiffler said.
The Gartner study echoes weak financial results at Dell, the world's largest PC vendor. Dell blamed cost cutting and weak demand for $14.1 billion in revenue for the quarter ended 4 August. That number was up only 5 per cent over the same period last year although Dell sold 11.6 per cent more computers worldwide, climbing from 8.7 million in the second quarter of 2005 to 9.7 million this year.
Looking past 2006, the flood of low-cost PCs will drive brisk sales in emerging markets through 2008, but mature markets like the US will soon slump to single-digit growth, Gartner said.