In 2008, by one estimate, the number of PCs in use around the world would top 1 billion.44 In
2007, worldwide PC shipments totaled 269 million units.45 The U.S. market and the Asia/Pacific
market (which excluded Japan) each accounted for about 26% of total shipments, Latin America for
9%, and Japan 5%. The largest regional market, EMEA (Europe, Middle East, and Africa), absorbed
34% of worldwide PC shipments.46 Annual PC unit growth had averaged roughly 15% from the mid-
1980s through 2000. After leveling off sharply early in the following decade, growth resumed at a
10% to 15% rate annual over the next several years. A rising share of that growth occurred in Asia
and in other emerging markets. In the United States, where an estimated 60% of households already
owned a PC, the PC market grew by only about 3% per year.47
Revenue growth, meanwhile, did not keep pace with volume growth—largely because of strong downward pricing pressure. By one estimate, the average selling price (ASP) for a PC declined from
$1,699 in 1999 to $1,034 in 2005, or by a compound annual rate of 8% per year.48 During that period, prices for key components (CPUs, memory, and hard disk drives) dropped even faster, by an average annual rate of 30%.49 PC pricing then leveled off somewhat, partly because consumer demand shifted toward powerful machines that could run media and gaming applications, and partly because demand shifted from desktop units to more-expensive notebook models. In 2007, the ASP for notebook PCs was about $1,000, while the desktop ASP ran at roughly $700.50 For PC vendors, the upshot of these pricing trends was persistently low profitability: The average profit margin on a PC in 2007 was less than 5%.51
PC Manufacturing
The PC was a relatively simple device. Using a screwdriver, a person with relatively little technological sophistication could assemble a PC from four widely available types of components: a microprocessor (the brains of the PC), a motherboard (the main circuit board), memory storage, and peripherals (the monitor, keyboard, mouse, and so on). Most manufacturers also bundled their PCs with an operating system. While the first PC was a desktop machine, by 2008 there was a wide range of forms, including laptops, notebooks, sub-notebooks, workstations (more powerful desktops), and servers (computers that acted as the backbone for PC networks).
In 2008, using off-the-shelf components, it cost roughly $400 to produce a mass-market desktop computer that would retail for $500. The largest cost element was the microprocessor, which ranged in price from $50 to more than $500 for the latest CPU. The other main components of a basic machine—motherboard, hard drive, memory, chassis, power, and packaging—together cost between
$120 and $250. A keyboard, mouse, modem, CD-ROM and floppy drives, and speakers totaled $50 to
$140; a basic monitor cost about $75; and Windows Vista and labor added about $70 and $30,
respectively, to the final cost. A PC maker could push its retail price down to $300 by using a less
powerful CPU, cutting back on hard drive capacity and memory, and offering lower-quality
peripherals. Alternatively, by tailoring a machine for computer gaming enthusiasts, a manufacturer
could build a PC whose sale price topped $3,000.52
As components became increasingly standardized, PC makers cut spending on research and development. In the early 1980s, the leading PC companies spent an average of 5% of sales on R&D. By the early 2000s, Dell Computer—then the industry leader—devoted less than 1% of its revenue to that purpose. Rather than invest heavily in R&D, companies such as Dell looked to innovations in manufacturing, distribution, and marketing to give them a competitive edge. Many firms, for example, turned to contract manufacturers to produce both components and entire PCs. At first, these contractors focused on handling simple manufacturing tasks at flexible, high-volume plants in low-cost locations. Over time, they moved into more complex areas, such as design and testing.