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Desktops Are So Twentieth Century


Pity the poor desktop computer. It sparked a revolution 25 years ago, but these days most consumers get about as excited by their home PC as they do by a lawn mower.

Contrast that with the passion people bring to their laptops. Thanks to plunging prices, even budget-minded road warriors are flocking to sporty new notebook designs with names like Ferrari and Aurora. Manufacturers, borrowing a page from Apple Computer Inc. (AAPL), are decking out portable models with nifty touches. Hewlett-Packard Co.'s (HPQ) Imprint Finish lets users personalize the look of a laptop cover, while Dell Inc.'s (DELL) XPS M2010 folds up to look like a briefcase. "It's trendier to have a laptop," says Elizabeth Autumn, 39, a research associate with GovernanceMetrics International who tapped away on a Toshiba (TOSBF) in a New York Starbucks (SBUX) one recent afternoon. "Smaller is cuter and more manageable; I carry it around like it's my baby."

With overall PC sales expected to slow sharply next year, the biggest action is shifting to the smallest machines. Just look at the numbers. Current Analysis, a research firm that tracks PC sales, found that revenue from laptop sales at major retailers it surveyed climbed 25% in the week that ended Nov. 25 from the same week the year before. Consumers seized deals such as the ones offered on Black Friday, the busiest shopping day of the year, at three of the biggest computer chains--Best Buy (BBY), Circuit City (CC), and CompUSA. They advertised notebooks for under $400.

And desktop PCs? In the same week, desktop sales fell 2%. The actual number of desktops sold in the year through October dropped 5%, according to researcher NPD Group Inc. Notebook shipments were up 35% during that period. "Desktops are in trouble," says Samir Bhavnani, research director at Current Analysis. "They are going to get marginalized to the very high end and the very low end of the market."

Think of the desktop market as gamers and grandmas. PC gamers remain a lucrative market segment, buying expensive computers to better blast aliens in head-to-head online competition. The elderly and all others who simply want to read e-mail and hit the occasional Web site are generally content with low-cost, limited-function desktops.

Analysts don't expect a big sales boost from the pending release of Windows Vista, the operating system from Microsoft Corp. (MSFT). After many delays, Vista's consumer version becomes available on Jan. 30. But most consumers don't even realize that Vista is pending, and some of Microsoft's partners believe it will take well into 2007 for significant sales to register. Worldwide shipments of PCs--desktop and notebooks--are expected to grow only 8% next year, to 230 million units, vs. the 15% annual pace of the past three years, according to researcher IDC (IDC).

The shift in buying patterns makes sense if you think about how people use computers. Many households in developed countries now own two or three. But even in hot markets such as China and India, notebook growth outpaces that of desktops: In Asia, shipments leaped 38% from the previous year, vs. 9.7% for desktops.

In some ways, the shift to laptops is welcome news for computer makers. Long squeezed by desktops' shrinking margins, they have a bit more breathing room with laptops. Notebooks deliver net profit margins of about 8%, twice that of desktops. What's more, consumers tend to replace laptops with greater frequency, buying a new one every three years compared with the nearly five it takes to ditch a desktop.

Who might suffer? The folks who make accessories such as keyboards or monitors, for one. There's not much need for them with a laptop. Some peripheral makers, such as Logitech (LOGI), already have expanded their product lines in recent years to insulate themselves. Aside from gamers and grannies, it seems no one wants to get tied to the desktop.

By Jay Greene and Cliff Edwards, with Sonal Rupani in New York


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