US 120 MILLION COMPUTERS TO BE PURCHASED in 2004 AND 140 MILLION IN 2005
Rise in PC shipments opens stock opportunities

Thomas Kostigen, CBS.MarketWatch.com; mailto:tkostigen@aol.com

SANTA MONICA, Calif. (CBS.MW) -- More personal computers will be replaced this year and next than in the scramble leading up to Y2K.

About 120 million personal computers will be replaced this year, according to The Gartner Group, the Stamford, Conn.-based research outfit, with 140 million more computers likely to be replaced next year. The swap represents a 13.6 percent rise in PC shipments worldwide this year and 9.8 percent in 2005.

Aging PCs -- more than 30 percent of which are at least three years old -- and growth in the United States and Asia are responsible for the increase, Gartner says in its PC Forecast Scenarios report for 2004/2005.

"Recent economic forecasts anticipate even stronger growth throughout 2004 for the United States, Asia/Pacific and Japan, despite persistently high oil prices," the report says. Indeed, Japan and the Pacific regions are already leading the world in terms of growth, as Morgan Stanley's country indices attest: Japan and the Pacific regions are the best performers.

Domestically, the U.S. Department of Commerce is also predicting PC sales will rise. Earlier this year, the Commerce Department issued a report revising upwards its projections for information-technology investment by small and medium sized businesses.

All this means computer makers like Dell (DELL), Hewlett Packard (HPQ), IBM (IBM) and Apple (AAPL), are poised to rise.

The PC sector is turning in good revenue results, up 14.3 percent as an industry this quarter compared to the same period last year. On a capital-appreciation basis, stock prices are up 9.6 percent industrywide, according to data from Reuters.

Semiconductor makers, who manufacture computer chips, and even software developers, whose systems run PCs, are also getting a lift from higher sales.

In fact, replacement of operating systems is mostly responsible for the PC growth.

"Expiring OS support will play a significant role in spurring PC replacement, more so than obsolescing hardware," according to the Gartner report. "About 40 percent of all installed PCS were running older versions of Windows... at year-end 2003."

Intel (INTC) and Microsoft (MSFT) are introducing new drivers this year. Intel's Celeron M microprocessor and its Dothan chip further enhance computers (like Compaq) that boast Pentium processing.

Microsoft was supposed to introduce its XP service-pack upgraded system this month, but has delayed that launch until the third quarter. The system upgrade is designed to further enhance security from viruses, worms and hackers. A delay means IT purchasers will put off buying until late this year or next, giving an additional boost to PC sales then.

On the down side, higher oil prices may throw a glitch into shipments next year. Oil prices could be a drag on incomes and profits and inhibit planed purchases.

Other digital devices are also stacking up as PC competitors. Gartner notes the plethora of new digital gadgets is forcing consumers to prioritize their electronics spending. But without a "killer app" that would replace the PC, competition from these devices, "may prove less adverse than it might seem over the long term."

Saving the leftovers

What's truly curious, however, is what will happen to the more than 200 million computers being replaced over the next two years.

George Shiffer, who co-authored the Gartner report, says he's doing further research on, "Where does all the stuff go?"

He says, "Some will be dumped, recycled. Some will be handed down, or stuffed in closets or put in storage. But that's a lot of machine."

And because of the sheer volume (nothing of this size and volume has ever come on the market before, he adds), businesses are being set up to receive PCs from the United States. and put back out on the market. Latin American businesses are especially keen to refurbish used PCs from the United States., he says.

"There's a strong secondary market," Shiffer says. "Who knows? EBay could even form a secondary market in them."

Echoing The Wasteland, what he hopes doesn't happen is to "see them dumped into landfills."

The rise of the PC replacement sector could be a boon for PC makers, but it also could be a boon for less-advantaged people and nations that can't afford new machines.

That way, lots of people could profit in many ways; and "PC" could live up to both its acronymic meanings.