Good Outlook for PCs

Computer makers enjoyed a remarkable resurgence in 2004, according to research published this week by industry analysts Gartner and IDC. Manufacturers shipped anywhere between 177 million and 189 million units for the year. That's at least 12% growth from 2003.

IDC's data shows Motley Fool Stock Advisor pick Dell (Nasdaq: DELL  ) to be the biggest benefactor of the sales boost, particularly during the recently completed Christmas season. Dell shipped 8.8 million PCs during the quarter, up 18% from the year before.

Hewlett-Packard (NYSE: HPQ  ) was a close second to Dell during the fourth quarter, but that's bad news for the firm, since HP typically takes the top spot for holiday PC sales. IDC also said the computer maker grew its business only 9% from 2003, resulting in a net market share loss to Dell. No wonder management changes are under way at HP.

HP's misfortune, though, may augur a broader trend toward slower but still strong PC growth in 2005. Gartner says that for a while, consumers have bought all the computers they're going to buy. Instead, businesses, which are always upgrading their aging systems, will drive the market in 2005. In fact, demand is expected to grow by 10% this year.

Though that's slower growth than during last year, the pie -- at least here in North America -- is technically a little bigger, especially now with IBM (NYSE: IBM  ) out of the PC business. That's not to say American consumers won't buy from Chinese computer maker Lenovo. But Gateway (NYSE: GTW  ) , which placed fourth in North American PC sales last year, and Apple (Nasdaq: AAPL  ) , which placed fifth, could both benefit from IBM's exit.

Apple is an obvious bet, of course. But Gateway is a different story. Negative earnings and cash flow have dragged the company down since 2001, yet its famous bovine boxes are being spotted everywhere these days. It has greatly increased distribution through deals it has struck in recent months with Best Buy (NYSE: BBY  ) , Circuit City (NYSE: CC  ) , and CompUSA. Plus, 35% of the company's tangible net worth is in cash. That's a sturdy floor that might make the ongoing operations of this beleaguered computer maker look cheap if a turnaround actually sets in.

For related Foolishness:

Dell is one of David Gardner's most successful picks for subscribers toMotley Fool Stock Advisor. He and his brother Tom continue to slap the market silly with their selections. Want in on the action? No problem. You can subscribe without risk for six months.

Fool contributor Tim Beyers owns way too many computers, but most of them are Macs. He didn't own shares in any of the companies mentioned in this story at the time of publication. To find out what stocks Tim owns, check out his Fool profile.


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