Latin American PC Industry, 2Q02 (Executive Summary) Executive Summary

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1 Latin American PC Industry, 2Q02 (Executive Summary) Executive Summary Publication Date: October 3, 2002

2 Author Luis Anavitarte This document has been published to the following Cluster codes: HARD-WW-EX-0310 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 Latin American PC Industry, 2Q02 (Executive Summary) Overview The region consumed 1,548,100 PCs, generating factory revenue of US$1,435,918,358. These represented declines of 8.3 and 15.8 percent, respectively. Deskbased shipments declined 8.2 percent while notebook PCs dropped in 9.7 percent over a year ago. The latest (August 2002) DRI-WEFA GDP forecast points to negative -1percent for Latin America in That clearly shows in the PC results for the second quarter of In addition to a stagnant Argentinean market, Latin America is suffering from a generalized economic crisis strongly influenced by the U.S. and world economic deceleration. The recent Enron, WorldCom and Xerox affairs had dampened the prospects for a prompt recovery. Brazil is showing declines in all computing platform products. This is the result of months of currency depreciation, an energy crisis, the psychological spillover of the Argentinean crisis affecting its bilateral trade, a presidential pre-electoral climate and the world economic conditions. Mexico's PC deceleration in the second quarter of 2002 could be partially explained by Compaq's dramatic decline of 51.9 percent in the period. The period has also shown the adverse effects of the harsh discussions about Hewlett-Packard'sacquisitionofCompaq.Themarketswereuncertainabout the outcome and what product lines from Compaq would prevail. Some shifting to IBM and Dell products also took place since the HP/Compaq negotiations began in September of The New HP HP's shipments declined 50.5 percent over a year ago in clear indication of the market uncertainties. Gartner Dataquest sees this as a unique circumstance, and now that the Latin American markets are aware of what the final outcome was and what products will remain in the market, "HP/Compaq" customer loyalty will return. The decline is mostly attributable to Compaq. With the only exception of notebook PCs in Peru, where Compaq posted 16 percent growth, Compaq declined in all PC market segments. IBM In the last seven quarters, the only other period in which IBM became the second PC player in Latin America was in the fourth quarter of In the second quarter of 2002 IBM regained its No. 1 position, displacing Dell. On a regional scale, IBM moved from 5.5 percent market share in the second quarter of 2001 to 6 percent in the second quarter of IBM's market gain was largely in Mexico where shipments grew 64.2 percent over the second quarter of 2001 for a 9.6 percent market share. IBM's market share in the second quarter of 2001 in Mexico was 4.9 percent. To an extent, IBM and Dell have been able to capitalize on market uncertainties. Now that everyone is back into normal business, IBM faces substantial future challenges in the PC industry despite its clear advantage in services in the region. Dell The Austin, Texas-based firm continues to grow in the region. While shipments declined 7.5 percent in Brazil they grew 205 percent in Colombia and 66 percent in Mexico. In the long-term, direct sales will prevail. Latin America is at the stage of a hybrid distribution channel model where success is more likely under the efficient execution of direct and indirect PC sales Gartner, Inc. 1

4 2 Latin American PC Industry, 2Q02 (Executive Summary) Brazil Weakness in the Brazilian economy continues to hurt the development of the local hardware markets, including PCs, servers and printers. Hewlett-Packard's (not including Compaq) unit shipment growth of 99 percent over a year ago and Metron's growth of 88 percent were the highest and only growth figures posted by branded vendors. Compaq and Vitech (Microtec) posted the largest declines with 76 percent and 48 percent, respectively. Nonbranded system builders grew 10 percent. In a difficult economy like the current one consumers resort to gray-market products. Adverse economic conditions such as the devaluation of the local currency, the real, which has created great uncertainty among consumers as well as business, are definitively affecting the market. Increasing unemployment has had an impact on the hardware markets as well, as there are fewer potentialbuyersinthemarket.asofjuneofthisyear,unemploymentstoodat 7.2 percent nationwide, the highest level in more than two years. Metron LocalvendorMetronexcelledinthesecondquarterwith59,600unitshipments. Metron is fundamentally positioned in the consumer segment and uses all available channels to access customers. About 18.8 percent of Metron's shipments had Advanced Micro Devices microprocessors. This is a substantial change since in the same second quarter of last year it shipped zero with AMD chips. About 71.7 percent of Metron's systems were within the $800-to-$999 price range; 16.8 percent within the $500-to-$799 price range; and, 11.6 percent within the $1,000-t0-$1,199 price range. Metron is definitively capitalizing from the price sensitivity issue dominating the PC market. Itautec In the second quarter of 2002, local vendor Itautec moved to the second position in the market, declining 5.7 percent over a year ago in unit shipments. About 14.5 percent of Itautec's shipments had AMD microprocessors. This represents 3.1 percent fewer AMD units shipped vs. the second quarter of Some 39.9 percent of Itautec's systems were sold within the $800-to-$999 price range; 56.5 percent within the $500-to-$799 price range and 3.6 percent within the $1,000-to-$1,199 price range. Dell The Austin, Texas-based company's shipments fell 7.5 percent over a year ago. Retrospectively, shipments for Dell since the first quarter of 2001 had been stable, fluctuating in the 20,000-to-27,000 unit range, which is substantially different than in Mexico where the range was 17,000-to-49,000 units. Dell sold 23.6 percent of its systems within the $800-to-$999 price range; 18.2 percent within the $500-to-$799 price range; 47 percent within the $1,000-to-$1,199 price range; 6 percent within the $1,500-to-$1,999 price range and 5.1 percent within the $1,200-to-$1,499 price range. Dell has been suffering from white-box competition. Given the average price difference between a Dell machine and a generic PC, this trend will continue. Dell's strategy to penetrate specific corporate accounts and not to try and compete in "the open market" is its best alternative.

5 Latin American PC Industry, 2Q02 (Executive Summary) 3 Mexico PC market conditions in Mexico appear to have decelerated given the second quarter of 2002 results. When looking at the figures one must be careful in realizing that a great portion of the negative results came from Compaq's low performance in the period. Compaq's 61 percent decline in Mexico may not be totally associated to an industry decline in itself but rather a direct consequence of market uncertainties related to the Hewlett-Packard/Compaq deal. Now that those uncertainties are over, and the market is well informed about the final agreement and which products remain in the market, the third quarter results should give us a clearer picture. This will allow us to determine whether this is a downward trend or not. Let's remember that when the market expected low results in the fourth quarter of 2001 and the first quarter of 2002, the PC industry grew "beyond expectations." Despite the 16.7 percent unit shipment decline over a year ago, microprocessor vendor Advanced Micro Devices was able to grow in Mexico 1.5 percent compared with the second quarter of Mexico's strong notebook PC industry declined 1.2 percent in shipments while desktop PC unit shipments fell 18.7 percent compared with the second quarter of White-box shipments grew 27 percent in the period, taking sales from Lanix and Alaska. Compaq Compaq posted a substantial decline of 61 percent in unit shipments compared with a year ago in the Mexican market. The average unit sales of Compaq in the last five quarters was 129,331 units per quarter. In the second quarter of 2002, its sales dropped to 49,474 units. The announced acquisition of Compaq by HP had an adverse impact on Compaq PCs in this market, as prospects decided to wait and see which product lines survived and how the combined company was going to operate. Compaq suffered more from this variable than from lower economic and market conditions. Alaska Despite its 24.8 percent unit shipment decline over a year ago, Alaska was the No. 2 vendor in the nation. Its lower sales are a clear indication of deteriorating market conditions at the consumer and small business levels. Alaska is also suffering face-to-face competition from white-box manufacturers. Hewlett-Packard The Palo Alto, California-based firm declined 31.6 percent in the second quarter of 2002 in unit shipments, compared with a year ago. It has also suffered from the market uncertainties of the Compaq deal and adverse economic conditions. In this period, HP has been affected by Dell's strong performance in Mexico, where it grew 65.8 percent in unit shipments over a year ago, and by IBM, which grew 64.2 percent.

6 4 Latin American PC Industry, 2Q02 (Executive Summary) Argentina The nation experienced an 81.5 percent year-to-year unit shipment decline. Sequentially, PC unit shipments grew 6.1 percent, jumping from 18,551 units to 19,693 units. In revenue terms, the PC industry generated $20.3 million, down from $123 million in the second quarter of Andean Region and Chile But overall PC market conditions in Argentina continue depressed. According to DRI-WEFA, Gartner's preferred source of macroeconomic information, Argentina's GDP decline in the second quarter of 2002 is expected to be close to 16.3 percent, while domestic private consumption will fall 20.9 percent. DRI- WEFA adds: "we do not expect any revival of domestic private consumption in the near future because of the loss in purchasing power suffered by consumers due to inflation and exchange rate depreciation." PC vendors and channels that have not yet ceased operations are operating at their minimum. All have seen shipments decline 82 percent and more when compared with the second quarter of All are conscious, as DRI-WEFA says, "there are no signs that the economy may be turning the corner anytime soon." Dell has had a small historical presence in Argentina. Because of this, the Austin-based company declined 62 percent in year-over-year unit shipments, the smallest decline among all vendors. The largest decline was experienced by Acer, which saw sales drop 99.7 percent to a total of seven units. While unit shipments declined 6.1 percent over the second quarter of 2001, the Andean Region (mainly Colombia, Peru and Venezuela) and Chile represent 15.3 percent of the region's total PC shipments. This is 1.4 percent higher than in the first quarter of 2002 and 0.5 percent higher market share when compared with the second quarter of It also represents an increase of 2.4 percentage points when compared with the second quarter of This subregion has grown in market share because of its comparison with the low performance of the other countries in the region. In the notebook industry, leaders in this geographical area were Compaq, IBM and Toshiba with market shares of 63.3 percent, 9.9 percent and 6.9 percent, respectively. The home segment in this subregion grew 3.3 percent and education experienced a 4 percent expansion, compared with a year ago. Rising unemployment, continued weak internal consumption and a tough international economic scenario, which continues to hurt its exports, accounted for the lack of growth in Chile's PC industry. Olidata continued to gain ground in Chile, capitalizing from Compaq's decline. Olidata, though, is not directly responsible for Compaq's lower sales in Chile. Compaq went through a period of uncertainty while the HP/Compaq acquisition deal was in debate. NEC penetrated the consumer segment through an aggressive retail campaign. The retail channel in Chile continues to play a fundamental role in PC expansion both the consumer and small-business segments. Colombia's PC shipments grew 5 percent over a year ago, despite internal economic imbalances. The relatively better hardware prices compared with other Andean countries makes Colombia, from a consumer perspective, the best market in this subregion. Early in 2001 Colombia eliminated import duties on all computing products with a declared price below US$1,500. This is helping sales and access to technology from lower-income groups. Growing

7 Latin American PC Industry, 2Q02 (Executive Summary) 5 shipments 295 percent and beating HP and IBM, Dell has had a phenomenal performance in Colombia, setting an important path within the Andean region nations still dominated by indirect sales. Peru reported 5.6 percent unit shipment growth over a year ago. With IBM regaining its leadership in the market, newcomer Olidata's sales almost topping the 1,000 units and white-box manufacturers increasing, this market continues to be in the 40,000 units per quarter bracket. The market continues to be in a strong recession despite reliable but misleading GDP indicators showing its economy will post the highest growth (3.6 percent) in Latin America in Venezuela showed a dramatic 30 percent unit shipment decline in the second quarter of 2002 compared with a year ago. Consumer confidence among its traditional middle class keeps declining. With the exception of Toshiba and Apple, all vendors posted declines in sales. From a vendor revenue perspective, the decline was 38 percent. Compaq TheHouston-basedcompanyexitedtheAndeancountriesandChilewitha 40 percent unit shipment decline over a year ago. Sales fell 42 percent in the desktop business and 25 percent in the notebook space. From an estimated revenue perspective, the company posted a 26 percent decline. IBM Again, IBM ended the period as the No. 2 vendor in this subregion with a sales declineof1.6percentoverayearago.ibmwentfrom9.6percentmarketshare in the second quarter of 2001 to 10.4 percent in the second quarter of In revenue terms, IBM had a 12.5 percent share in the second quarter of 2002, indicating success in its revenue over market share policy. IBM grew its desktop business 6.7 percent in the period but declined 24.3 percent in the notebook arena. In the reduced notebook space in the Andean region and Chile, IBM lost space to Dell and Toshiba, which grew 41 percent and 27 percent, respectively. Olidata For the first time, Olidata, now selling PCs in both Chile and Peru, positioned itself within the first three vendors in the Andean subregion. Key to Olidata's success are its competitive price points, market recognition and a clear retail strategy. Olidata's regional unit market share is 5.1 percent followed by Dell with 4.2 percent. Olidata's revenue market share in the subregion is 3.8 percent and the company is ranked as the sixth vendor in terms of revenue. Olidata's market segments grew as follows, compared with a year ago: home, 36.6 percent; education, 364 percent; government, 172 percent and business, 35.5 percent. Puerto Rico and Rest of Latin America These two territories combined grew 18.6 percent vs. the second quarter of 2001, representing 13.7 percent of the total PC market in Latin America. Whitebox manufacturers continued to expand their markets in these territories. In the second quarter of 2002 they controlled 61.6 percent of the PC business (market share) and unit shipments grew 47.7 percent over a year ago. The home segment reached a 33.4 percent market share. Businesses with up to 99 employees took a 31.6 percent share of the business segment, the largest share in that segment. Sequentially, values have gone up slightly.

8 6 Latin American PC Industry, 2Q02 (Executive Summary) Vendor Performance In unit shipment terms, Dell surpassed Compaq with 57.8 percent year-overyear unit shipment growth and a 12.3 percent market share. Compaq dropped to No. 2, with year-over-year unit shipments falling 38.5 percent. Compaq's market share was 11.8 percent. IBM followed with 14.3 percent lower sales vis-a-vis the second quarter of 2001 and a 5.1 percent market share. In revenue, Compaq, Dell and Toshiba occupied the top three positions in these territories with 17 percent, 14.7 percent and 6.9 percent market shares, respectively. Only Dell, Toshiba and Hewlett-Packard posted revenue gains in the quarter of 25.7 percent 36 percent and 34.9 percent, respectively. For detailed data, please see the following Market Statistics documents: "Latin America PC Quarterly Statistics, 2Q02" (HWCP-LA-MS-0151) "Brazil PC Quarterly Statistics, 2Q02" (HWCP-LA-MS-0154) "Mexico PC Quarterly Statistics, 2Q02" (HWCP-LA-MS-0153) "Argentina PC Quarterly Statistics, 2Q02" (HWCP-LA-MS-0163) "Andean Region and Chile PC Quarterly Statistics, 2Q02" (HWCP-LA-MS- 0162) "Puerto Rico and Rest of Latin America PC Quarterly Statistics, 2Q02" (HWCP-LA-MS-0164)