Stamford, CT -- With slower growth rates and reduced profit margins, the PC industry will face vendor consolidation, with three of the top 10 PC manufacturers exiting the market by 2007, according to Gartner, Inc. While the market has registered double-digit shipment growth the past few years, tougher times lie ahead.

PC unit growth is forecast to average 5.7 percent annually from 2006 through 2008, half the 11.3 percent average of 2003 through 2005. PC revenue growth will average 2 percent annually from 2006 through 2008, less than half the 4.7 percent average of 2003 through 2005. Emerging markets will account for more than 60 percent of PC market growth from 2006 through 2008.

"With PC replacements still in full swing, 2005 should be a reasonably strong year for PC vendors," said Leslie Fiering, research vice president for Gartner's Client Platforms group. "However, the end of the replacement cycle is likely to strain viability for even the largest PC vendors in 2006 and beyond."

Currently, the top 10 worldwide PC vendors, by unit shipment, are Dell, HP, IBM, Fujitsu, Fujitsu Siemens, Toshiba, NEC, Apple Computer, Lenovo Group and Gateway. Of the top 10 worldwide vendors, only Dell has consistently been profitable in the past several years. The PC divisions of HP and IBM are vulnerable to being spun off if their drag on margins and profitability are deemed too great by their parent companies.

Gartner's detailed analysis on consolidation trends and other important issues for the PC industry through 2008 is available to the news media in the Gartner Research Note "Predicts 2005: PC Technologies Due for Transition." This report is available on Gartner's Web site at http://www3.gartner.com/DisplayDocument?ref=g_search&id=458912.

PC price competition will intensify as vendors struggle to maintain growth in a competitive market environment characterized by weak replacement activity and the increasing significance of emerging markets.

"Global vendors will be forced to continue maximizing supply chain efficiencies and, finally, abandon any efforts to differentiate other than on price and service levels," Ms. Fiering said. "Vendors that have yet to do so may attempt to diversify into related markets pursuits, such as consumer electronics, to bolster margins. Others may attempt mergers with rivals to improve margins through economies of scale."

She added, "Exiting the market may be the only logical choice for global vendors bleeding profits and struggling for share."

The growing prominence of emerging markets could open opportunities for local vendors in those regions to pursue global markets. Particularly in Asia/Pacific, leading local vendors, such as China's Lenovo, appear well positioned to leverage their strong local-market standing and low-cost operating models into a global presence.

"Local PC vendors in emerging markets should consider acquiring local rivals as a means to consolidate home market position and develop the scale economies required to springboard into a global presence," Ms. Fiering said.

Gartner analysts said customers will be able to exploit the approaching buyers' market to pressure vendors on price and other incentives. However, customers also must consider the vendor's commitment to the PC market, as well as the vendor's "staying power" when selecting a manufacturer.

The latest projections for the IT industry are available in a series of Gartner "Predicts 2005" reports. Gartner's extensive "Predicts" research project spanned more than two dozen technology and vertical industry focus areas. More than 140 analysts proposed and collaborated on approximately 150 predictions that will affect IT users, vendors and most industries in 2005 and beyond. A description of these predictions is available in the Gartner Research Note "Predicts 2005: Deploy New Technology, Applications for Success." This document is available on Gartner's Web site at http://www3.gartner.com/DisplayDocument?doc_cd=124735.