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5/20/2004
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PC Sales Up--For Now

Gartner says replacement business will fuel sales growth for the next year or two, but the lack of a killer app will slow sales by 2006.

PC vendors posting stronger sales as businesses toss aging PCs in the improving economy are not expected to bask in the good times beyond next year, market-research firm Gartner said Thursday.

Replacement sales are expected to drive worldwide PC shipments to 186.4 million units this year, a 13.6% increase over last year, Gartner said in its second quarter forecast.

Almost 100 million PCs are expected to be replaced this year and nearly 120 million more in 2005, the firm said. Between this year and next, more systems are expected to be replaced than the run-up caused by Y2K in 1998 and 1999.

Age is the key factor behind the huge number of replacements. Businesses typically replace PCs every four years, usually because they are running Windows operating systems that Microsoft either no longer supports or has said it will drop in the near future, Gartner analyst George Shiffler said. The bulk of machines getting the heave-ho over the next 18 months worldwide will be running Windows 95, 98, and NT. PCs running Windows 2000, which is still supported by Microsoft, are expected to get tossed in significant numbers next year.

This is good news for PC makers in the short-term. But without a killer application to drive sales beyond the replacement cycle, Gartner expects computer makers to put away the champagne in 2006 and 2007.

"The peak of the replacement cycle will hit early next year, and then fade," Shiffler said. "We won't see the beginning of a new cycle until 2008, so that means you're going to see some lean years in 2006 and 2007."

PC makers will find it difficult to avoid the downtime because they are operating in a saturated market, particularly with businesses, which buy two-thirds of all computers sold each year.

"In the professional space, everyone who could use a PC already has one, so there isn't a lot of room to grow, except in the replacement market," Shiffler said.

In the consumer market, PC makers are trying to increase sales by marketing the computer as the digital entertainment hub for the home. However, it's too soon to know whether consumers will choose the PC, which tends to be complicated, to store video, pictures and music, over alternative devices offered by consumer electronic manufacturers.

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