For PCs, the 'wow' factor is gone

Merger of Hewlett-Packard and Compaq highlights ebbing of computer revolution.

More than anything else, this week's merger of technology giants Hewlett-Packard and Compaq symbolizes that - for now, at least - the personal-computer revolution is over.

Almost since its inception, the desktop-computer industry has grown at a phenomenal pace, fueled by tides of new technology that induced users to buy new PCs every few years. Now, for the first time in 15 years, worldwide sales are falling.

With a dearth of new programs that beg for more computing power, many people are content to stick with the machines they have. Moreover, digital cameras and palm pilots are focusing consumers on accessories that fit in purses and coat pockets, not on a desktop.

To many experts, this merely represents a maturing of the industry, as boom years give way to more moderate demand. To others, though, the layoffs and mergers suggest more than a natural downturn. They are a signal that - without innovation - the companies that are the soul of the New Economy may be in for continued hard times.

PC makers "were so tied into everyone buying a machine every two years that they forgot to provide a reason for people to buy them," says Rob

Enderle, an analyst at Giga Information Group in Santa Clara, Calif. "There's nothing to build up the value of purchasing a new computer."

This shift in the market has been coming for several years. When Dell Computers took the lead in computer sales in the late 1990s - putting its emphasis on low prices instead of technical innovation - others followed suit, beginning a price war. As the profit margins have sunk, companies such as IBM got out of the PC market altogether, and the ones that remained have had trouble.

Compaq lost $155 million on its PC sales last quarter, while Hewlett-Packard lost $150 million. Even Dell says revenues are falling and has announced layoffs.

To some degree, the slower sales are a symptom of the slowing global economy. Yet Americans' changing view of what role computers play in their lives might also be having an effect. No longer are they desktop toys, intriguing in their own right. More and more, they are being seen simply as tools - like TVs or refrigerators.

"The way that the computer has developed is that it's really just a high-tech telephone [for transmitting information]," says Jim Koch, director of the Center for Science, Technology, and Society at Santa Clara University. "It's just like saying, 'I'm not going to upgrade my telephone, because it meets all my needs.' "

That emerging practicality about computers can be seen throughout the high-tech world. Numerous studies, for instance, show that companies are holding onto their computers longer. Turnover, which used to be fixed at 18 months or two years, is now stretching to four years and beyond.

In addition, surveys about the Internet suggest people are surfing fewer and fewer sites, indicating that the joy of tripping through cyberspace randomly has been slowly replaced by a more businesslike scan for specific information.

"There is some sense that the higher levels of excitement that we had in the early days of the PC are starting to turn to feelings that are a little more mundane," says Todd Kort, an analyst at the Gartner Group in San Jose, Calif.

He notes that 66 percent of US households have at least one computer, as do perhaps 50 percent of households in Western Europe and Japan. "Basically, every white-collar worker who needs a PC has one," Mr. Kort says. "We shouldn't expect 15-percent growth rates - [as there have been] - in the future."

Still, there are plenty of opportunities to reinvigorate the industry, he and others say, and almost all of them begin with developing new technologies. Whether it's better voice-recognition software or programs to edit camcorder videos more easily, experts agree that the only way to spur PC sales is to create something attractive that makes old PCs obsolete.

Price wars have led PC makers to cut the amount of money they spend on research and design during the past 10 years, making a few giants like Intel and Microsoft the primary players still heavily involved in innovation.

Perhaps that needs to change, some experts say. Handheld-computer makers, for example, have seen and met consumers' desire for more mobility and convenience - thereby eating into the PC market. Some of these same ideas now need to be applied to PC development, Mr. Koch says.

"There needs to be some reexamination of PCs around user needs, and how people ... use them on a daily basis," he says. "The ability to customize PC applications is an avenue for growth. There is still a need for innovation."