Despite predictions of growth in the PC market, more tales of doom are issuing forth from industry analysts and the number-crunching crystal-ball gazers of Wall Street. Growth is too slow and blood will be spilt, say the men in suits. Indeed, matters are at such a crossroads that three of the top-ten PC manufacturers may abandon the market in the next few years as consolidation takes hold, according to recent research from Gartner.

If any PC maker is at risk surely one of those three will be shaky old Apple, which every year sees its market share plunge to a nail-bitingly low percentage. Search for the word ‘doom’ in any series of business stories from the past ten years, and Apple will be in a Microsoft-like market-share of them. But today, in an about-turn as startling as a blazing fireworks factory, the general gloom is lit by an uncharacteristic beam of optimism for the Mac maker.

PC unit growth is forecast to average 5.7 per cent annually from 2006 through 2008, but that’s half the 11.3 per cent average of 2003-2005. PC revenue growth will average 2 per cent annually from 2006 to 2008, less than half the 4.7 per cent average of 2003-2005. IDC expects global IT spending to grow 6.1 per cent in 2005, but predicts “enormous turbulence”, consolidation and realignment in key IT industry sectors.

The top ten global PC vendors, according to Gartner, are Dell, HP, IBM, Fujitsu, Fujitsu Siemens, Toshiba, NEC, Apple, China’s Lenovo, and Gateway. So who’s for the chop? Surprisingly, two possible PC victims are high up the list – the PC divisions of HP and IBM are prime targets for being spun off if their negative impact on corporate profitability is considered too great by the parent companies (see page 16). Researchers didn’t identify the third company that could drop out of the market, but it’s certainly neither Apple nor Dell.

This is partly due to each company’s lively online stores. According to Nielsen/NetRatings Apple received 4.9 million unique visitors to its Web site for the week ending November 14 – more than any other computer manufacturer. Next in line was Dell with 2.7 million visits. Apple also enjoys healthy sales through its bricks-&-mortar stores, such as the newly opened megastore in London’s Regent Street. (Of course, its sales in the mainstream high-street PC stores remain minimal.)

Despite lowering its unit-shipment growth forecasts due to caution about the PC market, Morgan Stanley suggests that Apple stands the best chances of gaining market share in 2005. This is down to several factors – the most quoted of which is the so-called ‘Halo Effect’ of the company’s market-dominating iPod digital-music player and iTunes Music Store. Apple has sold millions of iPods during the current quarter, and is easily beating competition from rivals such as Sony’s Walkman and Dell’s Pocket DJ.

Analysts at Piper Jaffray questioned a raft of retailers. The salespeople it spoke to indicated a steady stream of interest in Apple products across the board – including the G5 iMac that Apple is hawking as “from the creators of iPod”. iPod sales are expected to give a boost to computer sales,
a number of analysts say. UBS analysts believe that iMac sales will see some upside into 2005 as more and more customers purchase iPods. Piper Jaffray revealed its own survey of 200 iPod owners, which showed that six per cent of these have abandoned PCs for Macs, while another seven per cent plan to buy a Mac within a year. (That’s 26 people who have effectvely added hundreds of millions to Apple’s current valuation!)

Merrill Lynch expects Apple to sell 4 million iPods during the fourth quarter – up from 3.5 million last year. It also increased its fiscal 2005 sales target to 12.9 million iPods, up from last year’s 10.7 million. Another analyst forecasts iPod sales of 23.5 million units in 2006 Needham & Co analysts estimate that the installed base of personal computers could reach 1.3 billion by 2010. Since a PC is required to use an iPod, such continued consumer take-up will propel sales. Its analysis indicates that the installed base of music players could approach 500 million by 2010, equivalent to 7 per cent of the world’s population. 100 million Windows users are expected to own iPods by 2008. When such critical mass is achieved, Mac sales could surge if only a nominal fraction of this group make a purchase.

Analysts aren’t even pretending that Apple will maintain its current music market share. They predict that by 2010, iTunes Music Store market share will have fallen to just 2 per cent – although this figure will by then equate to sales worth $800 million per year. Confirming that Apple has successfully transformed itself into a $10 billion company again, Needham & Co presently predicts Apple to reach 2005 revenues of $11.7 billion, up from the $10.2 previously assessed. The company’s share price rocketed by as much as 300 per cent in 2004.

One man you’d imagine would be overjoyed at such news would be Apple co-founder, CEO and general talisman Steve Jobs. But as financial news giant Bloomberg has pointed out, Steve must be kicking himself for doing something totally out of character: underestimating Steve Jobs.

In January 2000 Steve received the largest option grant in corporate history: 20 million shares with a present value estimated at $471 million – representing 5.6 per cent of Apple shares. A second option covering another 7.5 million shares was granted in October 2001. But Jobs instead took an offer in March 2003 to turn in all 27.5 million share options for five million free shares – then worth about $75 million. As of the market’s close at the start of December 2004, those free shares had a value of $307 million. Had Jobs kept his 27.5 million option shares, they would have contained paper profits of $678 million. Ouch!

All this good news from the analysts is hard to take in after a decade of ‘Apple is doomed!’ reportage. Remember that many of these same analysts were yesterday’s dumb doomsayers. However, if Apple can cure itself of its horrendous supply problems and meet the Windows makers halfway on affordability, 2005 should see yet more good news stories for the Mac, and lashings of gloomy doom for the other guys. MW