PC retail is in rough shape again, and it’s about to get rougher.
Evidence of hardship is everywhere. Hewett-Packard (HPQ), the world’s largest computer maker, says it’s selling about the same number of computers as a year ago, but getting a lot less money for them – sales dropped 19% in the most recent quarter. When Apple (AAPL) reports earnings in July, analysts expect Mac sales to be off as well. And while Intel (INTC) says it’s hopeful that its chip sales are bottoming out, chip revenues are lower than they have been in years.
Why are things so bad? The easy answer is that PCs cost hundreds of dollars, and consumers don’t have a lot of extra cash floating around these days. Unless your computer has been struck by lightning and given up the ghost, chances are you’re holding off on purchasing a new one. One tech industry executive recently confided to me that it’s not just U.S. consumers thinking this way – the entire global PC market headed off a cliff at roughly the same time late last year, forcing computer makers to cut workers and rethink their strategies.
In the midst of all that, wireless carriers are poised to shake up PC retail. AT&T (T) announced this week that beginning this summer, it will begin selling small, low-cost Windows XP netbooks from Acer, Dell (DELL), LG and Lenovo in all 2,200 of its U.S. stores. (In case you’re counting, that’s about twice as many locations as Best Buy (BBY) has.) Rival Verizon (VZ) has already begun selling an HP netbook.
Why buy a computer from a phone company? Price, of course. Sign a two-year wireless data contract with AT&T, for example, and you get $50 knocked off the price of a netbook. Get home DSL service too and save $100. In Atlanta, where AT&T has been testing the deals, the cheapest Acer netbook sells for $49 after rebates.
Sales there have been brisk enough that AT&T execs are confident that cheap laptops will lure customers nationwide the same way cheap phones have in the past. And the deals will only get better: It’s easy to imagine that in a year or two, customers who sign up for two years of voice and data service (at a cost north of $100 per month) will leave a store with both a “free” phone and a “free” computer. Exciting, huh?
While this is great news for netbook-loving consumers, it’s a downright scary prospect for PC makers. If the phone business is any guide, carriers will fuel demand for the cheapest and least profitable computers out there, and put pressure on traditional PC stores to sell low-price PCs. And that will force tech companies to work harder to lure shoppers toward more powerful (and more expensive) hardware.
That’s not an impossible upsell, as the iPhone and BlackBerry (RIMM) have proven in the phone business. But it’s yet another challenge the PC gang doesn’t exactly need right now.