Will Mac Sales Go Up?

There’s a benchmark for severity, when gauging 2009 PC shipments: the 2000-2001 recession. Eight years ago, PC sales suddenly dropped, spiking channel inventories and leading even Apple and Microsoft to declare profit warnings. That recession was bad by just about every measure for PCs. As recently as January, PC sales looked better in a worse economic climate than the earlier recession. No longer. Gartner forecasts that PC shipment declines will be steeper in 2009 than they were in 2001 – 11.9 percent compared with 3.2 percent.

There’s no international relief coming, either. Gartner predicts that in 2009 PC shipments will decline 13 percent in mature markets and 10.4 percent in emerging markets. Previous lows: 7.9 percent in 2001 for mature markets and 11.1 percent in 2002 for emerging markets.

The question every Apple observer should ask: What does this impending crisis mean for Macs? Already, Mac market share is receding, down from 9.5 percent in the third quarter to 8 percent in the fourth quarter, according to Gartner. Recently, I reported that at US retail, Windows PC growth exceeded Macs in January. I’m convinced that Apple could reverse those two trends with minor pricing adjustments, starting with a lower-cost entry-level desktop Mac.

Apple’s position compared with Microsoft’s is actually better, for perhaps the first three quarters of the year. Strangely, two areas of Microsoft pain – better PC inventory management and increasing mininotebook (aka netbook) sales – could help Apple gain. I’ll explain.

The first half of 2000 was good for personal computer sales. But by September, many manufacturers, including Apple, suffered rapidly diminishing sales, which dropped faster than nearly all OEMs could accommodate, leading to bulging channel inventories. On 6 December 2000, Apple revealed 11 weeks of inventory in the channel. What’s normal: three to four weeks.

Apple’s Better Supply Chain
Now contrast fourth-quarter 2008 to the earlier recession. Apple inventory levels appear just about normal, and Windows PC OEMs are doing about as well.

“In the fourth quarter of 2008 vendors saw signals that demand was weakening and sent signals up the supply chain to stop building,” Charles Smulders, Gartner managing vice president, said in a statement. “At the same time, the channel cut back inventory due to a combination of economic uncertainty and the credit squeeze.”

Charles compared present to past: “Unlike 2001, vendors were able to react relatively quickly to the signals and push the inventory risk on to the component suppliers. We expect the pattern of stronger sell out demand than sell in to continue through the first half of 2009, with the channel choosing to hold inventory at historically low levels.”

Today’s greater inventory control is good for OEMs, but bad for Microsoft. If PC manufacturers ship less product into the inventory, Microsoft sells fewer software licenses. Already, during the fourth quarter, Windows Client revenue declined by 8 percent and operating income by 13 percent. Eighty-one percent of Window Client revenue comes from OEM sales.