Holiday PCs Sell Well Without Vista

NPD's holiday retail sales data--for the five weeks from Thanksgiving to Christmas--show sustained holiday PC sales, even without Windows Vista. PCs sales continued the trend foreshadowed by fairly strong Black Friday sales results.

Notebook sales soared, while desktops declined, consistent with a several year trend, according to NPD. The lack of serious sales impact confirms another trend: Consumers tend to buy new PCs for other reasons than the version of Windows.

"There is little--near zero--correlation between hardware sales and the release of a new operating system," based on historical data, said Chris Swenson, NPD's director of software analysis. People tend to buy new PCs when "there is need," he emphasized.

The sales correlation contradicts Microsoft's marketing positioning--and justification for five different major Windows Vista versions--that the operating system is a major factor affecting new PC purchases. The correlation, or lack of it, also saved retailers from sales doldrums.

Assessing PC sales
In terms of notebook units sold through retail stores, there was a 58 percent increase year over year, according to NPD. Revenue rose 26 percent, with an ASP (average selling price) of $777, down $202 from the same period last year.

By contrast, desktop retail sales declined a modest 1.2 percent in units and 8.5 percent in revenue. Falling ASPs--down 10 percent year over year--contributed to the revenue declines. However, ASPs fell a half percent less than holiday 2005 compared to 2004.

"There's not much lower ASPs can go," said Stephen Baker, NPD's vice president of industry analysis. Holiday 2006 ASP for desktops was $537, compared to $587 in 2005.

All in all, despite doom saying that Vista's absence would gravely hurt Microsoft hardware partners, Baker said there was negligible impact on hardware sales.

If there is going to be a problem, it will be with Vista upgrades. Lower-cost PCs tend to skimp on components that could affect Windows Vista's performance. While Baker said "most" holidays PCs--many packing at least 1GB of RAM--could run Windows Vista, he cautioned that graphics capacity could create difficulties. Most of the lower cost notebooks and PCs sold during the holidays had integrated rather than discreet graphics.

"Graphics have been a problem for a few years--it's not just a problem related to Microsoft," Baker said. With most desktops, consumers could at least upgrade graphics, while notebooks would be more problematic.

Software sales solid, but flat
As a category, software was flat, based on revenue, through the end of November and likewise for the holiday sales period, according to NPD. The holiday sales numbers are preliminary, while the year-to-date figures are final.

Given that retail software sales were similarly flat during holiday 2005, Swenson sees little broad impact coming from Vista's absence. However, one category that gained could be somewhat related to the absence of Microsoft's more secure version of Windows. Through the end of November, security suite software retail sales rose 17.5 percent year over year.

Not all security software is selling gangbusters. Microsoft's Windows Live OneCare, which at one time looked to be a major threat to companies like McAfee or Symantec, has fallen off since its introduction, at least in retail sales.

OneCare accounted for "2-3 percent of all security software" retail sales, Swenson said.

Not surprisingly, operating system sales are down more than 30 percent at retail, according to NPD.

Looking ahead, Swenson sees rosy prospects for software retailers. "With Vista, next year they'll do phenomenal," he said. Release of the new operating system, particularly with new security and graphics features, should pull sales in other software categories. Swenson attributed similar sales pull to Office 2007.

Based on historical data, Swenson expects that Windows Vista should do well at retail for at least a couple years before sales dramatically plummet. The larger question is what impact will Vista have on PCs sales. Historical data suggests little to none. However, Windows Vista could break the pattern.

"There might be some pent up demand because of the length of time between OS releases," Swenson said.