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Infrastructure // PC & Servers

More PC Buyers Opt For 'Good Enough'

No longer dominated by software and hardware, PCs are becoming a service business in which buyers are more interested in what they can do with the devices rather than their power.

The recession, coupled with the introduction of the low-cost netbook that's good enough for most computing tasks, has permanently steered most consumers and businesses away from top-of-the-line PCs, a market research firm said Thursday.

The dramatic shift in buyer thinking is radically changing the PC market, Ezra Gottheil, analyst for Technology Business Research, said in a quarterly report. No longer dominated by software and hardware, PCs are becoming a service business in which buyers are more interested in what they can do with the devices rather than their power, which is typically overkill for most tasks.

What drove the change in buyer attitudes was the current recession, which drove many people toward less-expensive PCs, particularly netbooks. The mini-laptops with screen sizes of 10 inches or less cost less than $500. Many models sell for as low as $300.

Netbooks have shown consumers and businesses that devices with limited functionality meet the needs of most people and higher-end PCs aren't needed.

"The recession is driving customers to value-based decisions, and they will retain the habit long after an economic recovery," Gottheil said. "Like the gasoline price shocks of 2008 and the 1970s, the recession is causing PC buyers to downsize."

The gasoline price shocks were responsible for turning many Americans away from large, gas-guzzling automobiles to smaller, energy-efficient models.

Netbooks have had a direct affect on PC makers' average selling prices, which fell throughout 2008. As a result, consumers and business have gotten use to paying less for a PC and will be unwilling to pay more, even after the end of the recession.

"TBR believes the decrease in ASPs is structural and permanent," Gottheil said.

The combined average selling prices of Hewlett-Packard, Dell, Lenovo, and Apple plummeted 13% in the fourth quarter of 2008, causing PC revenue to fall 18%. "ASPs have been declining over the long term, but the fall-off became steeper in 2008 and the bottom dropped out in 4Q08," Gottheil said.

The falling prices did not mean people weren't buying PCs, TBR found. Unit sales dropped only 5%, which means people and businesses were still buying, but choosing inexpensive models.

Indeed, the netbook category was the fastest growing last year and is expected to be the biggest driver behind PC sales this year. Unit shipments will rise to 21 million units from 11.7 million in 2008, according to Gartner. While mobile PC shipments in general are expected to increase by 9% in 2009, take the mini-laptops out of the equation, and growth falls to just 2.7%.

With average selling prices dropping, people may be willing to buy more than one PC after the recession ends, TBR says. To encourage this type of buying, PC makers will have to make it easier to manage data and programs on more than one PC at a time.

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