Executive Summary
The computer hardware market in the UK was worth £13.42bn at msp (manufacturers' selling prices) in 2000. Growth in value slowed to an estimated 4.7%. The first half of 2001 has seen a sharp downturn in spending, especially in the home PC sector, and Key Note's forecast for the 2001 computer hardware market is £13.05bn, down 2.8% on the previous year.
The market sectors include single-user computers (workstations and personal computers [PCs]), data-processing peripherals (such as printers and scanners), servers, and data communications hardware (mainly LAN [local area network] hardware and modems). PCs can be divided into desktop and portable models, the latter being mainly of the notebook size. Servers are multi-user systems, including large, enterprise servers or mainframes, mid-range computers and low-end servers.
Hardware prices have been falling annually and the cost of chips has also dropped. The steeply increasing performance/price ratio of processors has brought a rapid increase in computing power, which has benefited customers at all levels of the market. Low-cost processors for entry-level PCs have made home computers affordable to a wider population. Intense competition between the manufacturers and price cutting by the retailers have also helped to lower PC costs. The household penetration of home PCs saw a big rise in 2000 and again in 2001.
For the computer hardware market, these trends mean a squeeze on margins. While volume growth of the market has been in double figures in recent years, value growth has lagged far behind, although it has been running at above the rate of GDP (gross domestic product) growth.
2001 appears to be a crisis year. Overall volume growth has slowed and there has even been a contraction in the volume of PC sales. At the same time, prices remain low. There are several reasons for the slowing of volume growth. One is a reaction to earlier heavy spending on Millennium Bug compliance. Another is an increased requirement for corporate IT managers to justify their spending in terms of return on investment. Also there is a slowing of the recent boom in sales of home PCs. The downturn in the PC market is part of a worldwide trend affecting the more-developed computer markets.
A positive trend in the market is a strong demand for large web servers. There is also a continued strong demand for data communications hardware by corporate customers, although the trend towards integrated networks means that this sector is starting to converge with the telecommunications equipment market.
Key Note expects the downturn of 2001 to be a temporary setback and value growth to return to the market in 2002, therefore the forecast is growth of 22.7% between 2001 and 2005.
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