Editor's Note: Jim Seymour's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Jan. 18 on RealMoney.
From about the beginning of last year's fourth quarter, or maybe a little earlier, we heard a drumbeat of forecasts of a recovery starting in the second quarter of this year. The idea seemed to come from every direction, every analyst. It made some sense; it matched previous cycles; it felt good.
Network carriers were going to start carrying; switch makers were going to start switching; consumers were going to start consuming; corporate buyers were going to start buying. Life would be good. Stocks would go up. The "Q2/02 Recovery" mantra took hold.
Almost all of us
to believe it. The second quarter of 2002 seemed at once distant, yet close enough that if we could count on a recovery then, well, hey, we could survive. Heads down and bull ahead, etc.
I no longer believe that. The revolution, as it were, has been rescheduled. Indeed, I not only don't think a true, sustained recovery will begin in the second quarter, I don't think we'll see it in the third quarter, and I'm getting worried that it won't raise its lovely head in the fourth quarter, either.
!" moment for me came earlier this month, when I completed an informal but immensely useful survey of 53 information technology managers, chief information officers and other computer-buying people in U.S. corporations. All have been clients or friends of mine, all speak honestly, and all are in a position to directly affect a restart of large-scale corporate PC buying.
Before I get any further into this, I want to make clear that I don't always see PC sales as a perfect predictor for the market as a whole, nor even just for tech stocks. PC sales too often have surprised us -- both up and down -- to buy that story across the board. But there is a correlation, if loose, and I think this connection is instructive.
And even if you don't see a link between business PC sales and the business economy, or the tech-stock universe, you'll find this interesting in terms of the prospects of the computer makers.
What did I learn from my corporate-geek friends? That they have not the slightest intention of buying many new PCs in the first or second quarters of 2001 -- nor, in most cases, later this year, either.
Sure, they'll pick up the PCs they need for new hires -- but they don't expect to see new hires at those empty desks in their offices this year, either. And yes, they'll replace some banged-up notebooks worn out by their most zealous road warriors. But the kind of large-scale, PC fleet-replacement buys we've seen every three years for a decade or more? The companywide upgrade plans, in which everyone moves to a new hardware (and usually software) platform over, say, six months?
. Indeed, not one of these key buyers is planning the kind of large-scale PC upgrade they've done in the past.
Because they don't have to
There are lots of factors at work here: The economic slowdown, worries about security in the broadest sense, falling revenues and profits, among others. But when I asked about the main reason they weren't planning large-scale PC purchases this year, almost to a person my contacts came up with the same sensible response.
Remember late 1998 and 1999? When the Y2K crisis was looming just ahead, and bad code both inside PCs (and other devices) and in the software we ran on them was going to bring the world to a stop? When computing magazines were filled with stories on how you could upgrade this or that hardware component, find new software drivers, test the code you'd written yourself? And then, if you were very lucky, you and your company would be OK?
Big corporations don't work that way. What happened is that throughout 1999, and especially in the fourth quarter, corporations simply replaced their entire fleets of PCs. It was a simple, direct answer, with a high chance of success. And it worked: The Y2K rollovers -- both the phony one, on Jan. 1, 2000, and the real one, on Jan. 1, 2001 -- came and went, and we didn't see any significant problems.
In effect, corporations broke their long-standing cycles of PC replacement, in one quarter bringing their buying cycles into alignment. That was fabulous for the PC makers -- they had sensational, glorious, best-ever fourth quarters in 1999 -- but now they're paying the price.
It shouldn't be that way -- we and they should be gearing up now for another incredible fourth quarter, three years later, near the end of this year. But that, my friends in the survey told me, just ain't gonna happen.
A New Perspective
They've forsaken the notion that you have to replace your PCs every three years. Before, you did it in large part because technical improvements in PCs and software made what was sitting on their workers' desks pretty much obsolete iron. You could make a good case that the newest PCs and software releases could contribute significantly to those workers' productivity. And finally, by bailing on machines at the three-year point, IT managers avoided most of the repair issues they had long feared would arise with older electronic devices.
This year we're seeing a reversal of that view take hold. Why replace everyone's PC when a newer, faster one won't contribute one whit to a worker's productivity?
Remember the kinds of machines IT people were putting on our desks in late 1999: desktop PCs built around 600 megahertz and 700 megahertz Intel CPUs, with decent-sized hard disks, 128 megabytes of RAM, reasonably fast CD drives. Still sounds pretty good today, eh?
IT managers don't particularly want their users to have hard drives with more than 4 to 6 gigabytes of storage -- they want company data stored on their network servers, not on local machines. They don't care about CD-R drives -- which many see as ways for employees to steal big chunks of corporate data. And they can't figure out how a faster CPU is going to get a lot more work done. Neither can I.
The point, they say, is that there's simply no business case for buying new PCs yet. Another year, maybe two, yes: time to buy. Not today. Especially when every company wants to hoard cash, improve quarterly results, make do with lower capital expenditures.
So if you've looked to the PC sector to start things turning again, to get things fired up, look elsewhere. PCs aren't going to lead the charge this time. At least not in the second quarter of 2002. Or the third quarter. Nor, probably, in the fourth quarter.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour had no positions in the stocks mentioned in this column, although positions can change at any time. Seymour does not write about companies that are, or have been recently, consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites you to send your feedback to