Thursday, January 13, 2011

Morning Brief: PC sales grew, but less than expected thanks to a shift to tablets (read: iPad);

Tech sites were mulling over the two reports released yesterday from Gartner and IDC which showed that while PC sales grew during the fourth quarter of last year, they grew at a much slower pace than expected thanks to competition from other platforms -- in particular, Apple's iPad.

According to the report from IDC, PC sales increased 2.7 percent in Q4, while Gartner said they grew by 3.1 percent. No matter, the fact is that they grew, but at a much slower pace than expected. In fact, US sales declined, no doubt reflecting the continued weakness of the economy -- but also reflecting the competition for consumer dollars from smartphones, the iPad, and other electronic devices.

According to the Financial Times account of the reports, neither research firm counted iPad sales in their PC analysis. Had they, "the overall market would be showing tremendous growth, with IDC estimating a 19 per cent gain in volume from 2009 to 2010," the FT story read.

According to the two reports mentioned above, the two companies that appear to be doing well selling PCs are Toshiba, and no surprise, Apple: Toshiba recorded a growth of 14.4 percent in both reports, while Apple showed either a 15.2 percent growth level (IDC) or 23.7 percent growth (Gartner). Apple market share now is between 8.7 and 9.7 percent according to the reports -- still low, but almost double what it was less than a decade ago.

(See AppleInsider post for more PC sales data.)

Yesterday the Illinois legislature passed a bill that will result in a massive (by percentage) increase in the state's income tax -- from 3 to 5 percent -- admittedly low by some state standards, but high when one considers both sales and property tax levels. Somewhat lost in the discussion has been the massive debt the state faces, and its mandate to balance its budget.

Illinois, of course, is not alone in having to face a budget shortfall. While Illinois was facing a $15 billion deficit, Texas may be facing a deficit as high as $25 billion, while California is looking at a $20 billion hole -- and these are only estimates.

Today Illinois is in the headlines, but recently it was recently elected Governor Jerry Brown who drew considerable attention his draconian cost cutting proposals. The idea was to not mask the shared pain that will result from not raising revenue when faced with a financial crisis.

The fact is that the chickens are coming home to roost after years to federal tax cuts, wars conducted off budget, and a Congress unwilling to say no to either new spending or the financial requests of administration officials. The states, and soon cities, will be hit very hard in 2011. Right now a majority of states are run by a Republican majority which has promised no new tax increases.

The result of all this may well be a softening of the economy right when things have begun to look ever so slightly better. This would not be good news for publishers who have been hoping to see a better advertising environment. It would also put pressure on tech companies entering the tablet wars this year -- it will no doubt lower the number of winners that will emerge in the space.