Notebooks Take the Helm in U.S. Retail with 51% Annual Unit Growth

Despite falling short of last year’s holiday unit increase of 30%, combined notebook and desktop PC sales for the U.S. retail holiday season of 2006 registered a 26% annual increase over last year. The consumer market’s move to mobility was clearly evident and was marked by a staggering 51% growth in the notebook space during holiday 2006. In contrast, desktops failed to keep up with last year’s resurgent pace and posted a 2% annual decline.

Current Analysis Perspective

► Current Analysis takes a highly positive stance on the 26% annual unit growth posted by the PC category for the holiday 2006 season. Despite the fact that this growth is four points shy of the 30% growth posted during last year’s holiday season, the double-digit figures still show a somewhat unexpected resilience for a category challenged by Microsoft’s delayed Vista launch and a myriad of alternative consumer electronic devices.

Some of the most notable holiday highlights for the 2006 consumer shopping season (November 25 through December 30) are as follows:

► PC (desktops and notebooks combined) sales posted annual increases of 26% in unit sales and 9% in revenue (holiday 2005 to 2006) compared to last year’s 30% unit and 13% revenue growth (holiday 2004 to 2005).

► Notebooks conquered with a 51% increase in units and a 21% revenue improvement over holiday 2005, up from 44% unit and 19% revenue increases a year ago.

► Desktops posted disappointing 2% and 13% respective unit and revenue declines (holiday 2005 to 2006) compared to last year’s 16% unit and 4% revenue increases (holiday 2004 to 2005).

► HP’s dual-brand strategy dominated the field with 42% of notebook sales and 58% of desktop sales.

► Media Center PCs broke all previous holiday sales records by accounting for 80% of notebook and 79% of desktop sales in the holiday 2006 season.

AT&T Acquires BellSouth with Promises to Expand Broadband and Video Services

On December 29th AT&T completed its acquisition of BellSouth, expanding its incumbent local carrier coverage of voice, DSL, and wireless services to a 22-state region. Integration has begun to combine AT&T, BellSouth, and Cingular’s wireless and wireline IP networks, product portfolios, and customer-care capabilities.

Recommended Competitive Responses

► Cable competitors might want to use AT&T's acquisition of BellSouth to explore ways they can chip away at the FCC's media concentration of ownership restrictions. Comcast can argue it is inherently unfair that the cable company is restricted from further growth by media ownership caps while telco competitors face no similar restrictions.

► Independent VoIP providers such as Vonage could view AT&T’s FCC concession of a cheap standalone DSL offering as a major opportunity to get more consumers interested in their low-cost local and long-distance voice plans.

► Cable operators, which are AT&T’s main residential service competitors, need to keep hammering away at winning AT&T residential customers with their own service bundles, particularly by adding voice and wireless services to their high-speed Internet and video lineup.

Apple TV’s Buzz Reverberates throughout CES in Las Vegas

Apple CEO Steve Jobs followed through on his iTV sneak peek last September by introducing Apple’s first convergent device, bearing the official name of “Apple TV.” When introduced at MacWorld in San Francisco, it took only minutes for the Apple TV buzz to make it to CES in Las Vegas, making it one of the most tantalizing product announcements of the show despite its absence from the CES showroom floor.

Current Analysis Perspective

► Current Analysis takes a moderately positive stance on the Apple TV launch. While Apple TV falls short of addressing all facets of PC and TV convergence, it certainly provides an opportunity for Apple to leverage the halo effect of its iPod and iTunes initiatives, which is enough reason for CES vendors to pause and take notice.

► Apple TV’s initial advantages are simplicity of design and implementation, HD capability, its ability to leverage iPod and iTunes audio and video digital media and a palatable price point. By bypassing personal video recorder (PVR) features altogether, more users will be able to take a first step into PC/TV convergence without altering the conventional TV viewing ecosystem.

► On the other hand, Apple TV’s failure to address the broader PVR applications leaves it at a disadvantage against more comprehensive solutions such as Media Center PCs and other DMA devices that have recently been introduced into the marketplace. The product’s initial technical requirements also omit Microsoft’s Windows XP Media Center operating system (OS), meaning that it cannot leverage the installed base of Media Center PCs, which has grown considerably in the past year.