PC Sales Byte the Dust

Programmer’s Paradise has seen a shift in buying habits among its core audience of software developers.

Without question, computer manufacturers have been having a tough year. January saw a flood of less-than-stellar revenue reports from Apple, Compaq, Gateway, and Hewlett-Packard, among others.

For computer resellers, though, times aren’t nearly so tough. CDW, for instance, announced sales for 2000 of $3.84 billion, up 50% from 1999’s net sales of $2.56 billion. The Vernon Hills, IL-based cataloger posted an even more impressive 65% growth in net income, to $162 million.

PC Connection and IdeaMall are among other computer catalogers that have enjoyed a rise in annual income in 2000. It’s not that they aren’t feeling the effects of the computer market’s slowing growth. But unlike the computer manufacturers, they are also benefiting from the increase in sales of wireless devices.

Consumers PC’d out? Part of the problem for computer manufacturers and marketers is that most U.S. households – 51%, according to the Commerce Department’s National Telecommunications and Information Administration – already have at least one computer.

“The consumer market is somewhat saturated at this point,” says Charles Jarrell, vice president of marketing for Tempe, AZ-based $1.5 billion computer cataloger Insight Enterprises. “We’re 10 years into having the PC as a product that you can buy for the home, so there is good penetration in the consumer market. The existing machines in many households are at least 500 MHZ, and most consumers don’t need much more speed than that to run programs such as Excel, Word, and PhotoShop.”

And many consumers with home computers upgraded in 1999, in response to concerns about Y2K problems. “You probably had a fair amount of people buying new machines in 1999, so they don’t need new machines now,” says Jerome York, president/CEO of Norwalk, CT-based computer cataloger Micro Warehouse. York adds that an overall softening of consumer spending has contributed to the slowdown in computer sales. Consumers account for about 15% of Micro Warehouse’s sales.

In fact, some industry experts believe that if not for Y2K-induced purchases and merchants’ steep rebates on computers two years ago, the PC sales slowdown would have started two years ago.

“This year it looks like the PC sales market is tanking and collapsing,” says George Meier, technology director for the NPD Group Intelect Market Tracking, a technology research firm based in Port Washington, NY. “But in 1999 there were great rebate offers from different computer companies, which gave hundreds of dollars in rebates on machines that people purchased along with Internet service plans.” Those rebates stimulated consumer sales and prevented the computer industry from seeing “a sequential slowdown from 1999 into 2000,” Meier says.

B-to-b sales slowing too The PC sales slowdown has also hit the business-to-business sector. “The consumer side of our business has softened more than our corporate side, but the softening has been fairly uniform across product categories,” says Micro Warehouse’s York. “We began seeing a slowdown across the board in October, which became worse in November and December, but so far in January we seemed a bit stronger.”

Other companies have seen a change in the habits of their buyers. “We’ve been affected by a shift in buying habits within medium- to large-size businesses,” says Bill Willett, president/CEO of Programmer’s Paradise, a Shrewsbury, NJ-based cataloger specializing in tools for software developers.

“Previously, developers expensed more of the software tools they needed and ordered directly,” Willett says. Now more of the selection and procurement decisions are made through traditional channels within the IT management and purchasing departments. In response, Programmer’s has expanded its outbound telemarketing staff to pursue sales from IT management. The expanded effort has led to “greater opportunities in pursuing large corporatewide software licensing sales, as well as other volume deals,” Willett says.

Wireless surge For resellers, the good news is that shipments of wireless Internet-access devices will sustain double- and triple- digit growth through 2004, according to a recent report by Boston-based research firm Cahners In-Stat Group. The report predicts that by the end of 2002, virtually all wireless phones will be preloaded with mini browsers and will be Internet-enabled. By 2004, sales of Internet-ready wireless phones are expected to surpass $1 billion a year.

Insight Enterprises is one reseller reporting strong sales of handheld wireless devices, notebooks (or laptops, which are considered to be a different product category from desktop PCs), and other mobile tools. “As the base PC sales go down a little, more people will be putting dollars into upgrades and mobility products,” says Jarrell.

Micro Warehouse has also seen sales of mobile products rise. “Our laptop sales are stronger than our desktop sales,” York says. “And wireless devices are definitely an expanding category. We’re selling virtually everything [wireless] that we can get our hands on.”

Matt Cookson, spokesperson for Merrimack, NH-based cataloger PC Connection, says his company’s sales on notebooks for the fourth-quarter were up 22.3%, even though its overall fourth-quarter sales are down slightly. PC Connection will keep its catalog circulation at about 40 million for 2001, though Cookson admits that “economic conditions have affected demand for high-tech products.”

Looking ahead Happily, none of the computer catalogers contacted are taking the hits that the manufacturers are. In January, for instance, Gateway announced that it would cut abut 10% of its 20,000-person workforce following a fourth-quarter loss of $94.3 million.

Like Gateway, Hewlett-Packard warned in January that annual results would fail to meet expectations. And not only did Apple Computer have a disappointing fourth quarter, buta number of resellers have pressured Apple to offer additional rebates to help liquidate its current iMac models to make way for the new ones.

Even manufacturer/cataloger Dell, long an industry paragon, reported that its fourth-quarter results would fail to meet expectations. At press time it estimated sales for the quarter to range between $8.5 billion and $8.6 billion – impressive, yes, but Dell had originally projected revenue of $8.7 billion.

But while resellers aren’t suffering as much as the manufacturer, they are still bracing for a less-than-stellar year.

Programmer’s Paradise’s Willett says his company sees “a growing need for integration of our print and online efforts” in the face of slowing sales. “Our customers are quite comfortable migrating back and forth from our catalogs to our Websites, so we’ll also seek greater synergy in content and offers.” Willetts wouldn’t give specifics, however.

Micro Warehouse is “scrutinizing all capital spending,” York says, and limiting hiring to critical positions, such as within its sales force. The cataloger also made modest cutbacks in its spring mailings. “We had a less than 2% reduction in catalog mailings for February, but we plan to use the money we saved for special promotions,” though he would not disclose specifics either.

Overall, York says, his company is cautious about the slowdown and “taking this a month at a time. We’re watching the situation to see whether this is a brief economic pause, or whether it’s worse than that.”

You won’t have Insight to kick around anymore – at least in your mailbox. “This will be the last year for our print catalog,” says Charles Jarrell, president of $1.5 billion-plus computer reseller Insight Enterprises.

The success of the Tempe, AZ-based marketer’s new business model, which integrates the telephone sales force with its Website and e-mail marketing campaign, inspired the company to eliminate the print book.

“We started reducing our circulation frequency in 1998 and continued reductions during the last three years,” Jarrell says. “We began producing an HTML e-mail marketing program and slowly replaced our offline prospecting efforts with e-mail,” which goes to Insight’s business-to-business mailing list. “We’ve also been repositioning our business model to take advantage of our sales force,” he says.

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