| BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Who Needs PCs? (int'l edition) Suddenly, growth is cratering Sophie Cabanes appears to be a natural candidate to buy a new personal computer for Christmas. The 40-year-old Parisian architect works with an out-of-date Apple at her office. Her two boys would like to begin surfing the Net. But home is a small, 75-square-meter apartment, and Cabanes won't buy a PC for her boys. It's much more likely that she'll sign up for interactive digital TV or Internet service on her mobile phone. ''We don't have room for a computer, and they are too expensive,'' she says. It's a surprising development for Europe's fledgling New Economy. A year ago, PC purchases were surging ahead at 17% a year. Analysts were predicting that the Continent's levels of computer usage soon would reach U.S. levels. But this year, the PC growth rate has tumbled to half that, confounding predictions of future double-digit growth. That's in part because of rising prices and competition from digital TV and mobile phones. Whatever the cause, the slowdown is hitting the earnings of far-flung tech powerhouses Intel Corp. and Dell Computer Corp., along with the valuations of once-high-flying European Internet service providers such as Freeserve PLC and T-Online International. PLATEAU. Although some PC boosters see only a temporary blip, more and more industry officials and analysts perceive a fundamental change. ''Europe simply won't be as PC-centric as the U.S.,'' argues Noah Yasskin, chief researcher at Internet consulting company Jupiter Research 2000 in London. He predicts continental PC penetration will plateau in 2005 at only 52% of households, while it should rise to 73% in the U.S. And only 43% of European households will use PCs to hook up to the Net, compared with 74% in the U.S. Most Europeans are expected to reach the Internet in ways different from those of Americans. So computer makers will have to adapt to the European preference for smaller, simpler, and cheaper interactive devices. The immediate causes of this year's PC burnout are easy to detect. Corporate sales, which make up about 73% of the total market, collapsed because companies had stocked up in advance to prepare for the much-feared Y2K problems. ''[Now,] when IT managers go to the bosses and say: 'I need 400 PCs with Windows 2000,' the finance manager says: 'Didn't I buy you a lot of equipment last year?''' observes Jeremy Davies, senior partner at Context, an IT business analyst in London. Even more important, most computer components are priced in dollars, so the weak euro has forced up prices for PCs and peripherals by as much as 20% in local currency--just when Europeans were facing high prices at the gas pump as well. At one Exell Computer shop in Brussels, top-of-the-line PCs that sold for $2,021 in September now go for $2,340. And at a Paris FNAC electronics store, a Compaq Presario model that went for $1,427 in June now costs $1,687. ''The euro and petrol crises destroyed confidence,'' says Maria A. Marced-Martin, Intel's general manager for Europe. The bad news blindsided the chipmaker and some of its PC partners. European PC sales usually slide in the summer, when people take long vacations. That initially hid the third-quarter slowdown until ''sales in September dropped off a cliff,'' according to Andy D. Bryant, Intel's chief financial officer. Intel believes poor European sales will keep fourth-quarter sales growth under 8%, less than half the company's typical fourth-quarter rate. And Dell figures third-quarter European sales rose only 2%, pulling global growth below expectations. SMALLER IS BETTER. Tactical errors may be magnifying the effects of the slowdown. Market leader Intel ran into problems because its highest-margin customers are Europe's 25,000-plus mom-and-pop PC assemblers: Because they are losing market share to big PC brands, their orders for Intel chips are dropping. And Dell, say rivals, has proved less adaptable to Europe's varied markets because it manufactures only in Ireland and refuses to rely on local distributors. ''Dell has been slow to recognize that Europe is much more complex than the U.S. in currencies, logistics, and culture,'' says Jos Brenkel, general manager of Hewlett-Packard Co.'s European Business PC Organization, which manufactures across Europe and works with local distributors. Dell European Div. President Paul D. Bell says his company only needs to ''fine-tune its model.'' If they are going to buy, Europe's demanding customers seem to prefer smaller notebook computers to desktop PCs. Sales of the larger computers haven't grown at all this year, while notebook purchases will soar by an estimated 41% by yearend. That's partly because prices for portables are now just 20% more than those for comparable desktops--even though notebook prices have risen, too. ''Notebooks finally offer a realistic alternative in terms of speed and memory,'' says Francois Bornibus, Compaq Computer Corp.'s European PC manager. The smaller the product, it seems, the better suited to European tastes. At the start of the year, for example, Compaq estimated it could move 10,000 units a month in Europe of its iPAQ personal digital assistant, which offers an address book and spreadsheet. Instead, Compaq says it is selling 30,000 monthly. Similarly, HP says sales of its Jornada PDA have doubled this year. ''That's much faster growth than in the U.S.,'' says Brenkel. Sales of PDAs are expected to soar next year when they will come with a mobile phone inside. Notes Compaq's Bornibus: ''We're convinced the main Internet access device in Europe will be wireless and mobile.'' Europeans will also access interactive services via television more often than Americans. Over the past year, subscriptions to advanced digital-TV services have risen sharply, with British Sky Broadcasting Group PLC in En-gland and Canal Plus in France each counting more than 8 million users. More than 1 million of BSkyB's users have BSkyB e-mail addresses, making the TV station Britain's fifth-largest e-mail provider. BIG FEES. Europe's couch potatoes don't often surf the Net with their remote controls because Web pages don't configure well on television. But they do order pizzas from online Domino's stores or bet on Paris horse races. ''We're not talking about a complete Internet experience, but a new form of entertainment'' that suits many people who will never buy computers, says Jon Florsheim, managing director of Open, BSkyB's e-commerce platform. Besides the attractions of digital TV and the mobile Web, there is another reason why fewer Europeans than Americans surf the Net on their PCs: Internet access charges. While Americans pay a single monthly fee for access through fixed-line phones, Europeans usually pay by the minute, because phone companies there charge for local phone calls by the minute. Those charges hurt. Earlier this year, several ISPs announced plans to offer monthly subscriptions, in hopes of grabbing market share fast--and in the hope that regulators would force a change in local phone charges. But most regulators kept mum, and most ISPs have since withdrawn these offers. So high access costs are a further turnoff to plunking down thousands for a PC. How much is the squeeze on PC sales going to hurt Europe's search for a high-tech lift to its economy? A lot depends on whether Europeans will gravitate en masse to new services like the mobile Web--and whether computer manufacturers can adapt to the changing market. Europe will have its own digital future--but not one imported wholesale from the U.S. By William Echikson in Brussels, with Andy Reinhardt in San Mateo, Calif. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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