PCs Not Ready For RetirementPCs Not Ready For Retirement

AT&T is keeping a close eye on costs these days, and one easy target is its 80,000 PCs. The company used to buy new machines every three years. Now that's being stretched to four or even five years, and buying a new PC takes a higher level of managerial approval.

Neither the economy nor technology will change that replacement cycle soon, says Tom Bolger, district manager for AT&T's desktop services. For information workers who use "their PCs for nothing more than Internet or E-mail access, I don't see any killer apps coming out that would require me to buy them new PCs," he says.

It's become a familiar story for PC manufacturers. Before this year, they operated under the assumption that computers outfitted to survive the year 2000 bug would be replaced in late 2002 or 2003, says Alan Promisel, an IDC analyst. "The current economic environment has caused companies to push out the cycle times," he says.

In the past, PC buying was influenced by three factors: a healthy economy and accompanying healthy IT budgets, an abundant stream of must-have applications, and a need to keep up with the latest processor and memory configurations. "All three of these have fallen off," says Andy Neff, an analyst at Bear Stearns. Neff says he doesn't expect sales in the PC industry to pick up until the second half of next year.

Networking technology may also play a part in extending PCs' lives. Boscov's Department Stores planned to replace PCs every two years, beginning in 1999. As the economy began to sink, the cycle was revised to three years, and CIO Harry Roberts is trying to push the cycle out to five years. Roberts reasons that employees don't need more disk storage or faster processors right now. He's also trying to move storage off PCs and onto the network as much as possible, because the company has storage capacity it can tap without additional investment.

"We're moving to Web-based computing as rapidly as we can," Roberts says. "It's when the cost of maintaining your old PCs becomes a burden that you buy new ones. Without using more Web-based applications, we wouldn't be able to push the cycle to 60 months."

AT&T also is looking to move more applications to the Web so they'll run on company intranets instead of on local hard drives. But that's a tricky proposition. "Applications are definitely going toward the Web-distributed model," district manager Bolger says. "But there are many apps that would be too expensive to redevelop as Web-based applications." For AT&T, every new PC or upgrade will be assessed case-by-case for the foreseeable future.

Companies are still buying PCs, though the pace is slower than in recent years. information Research's 4Q Priorities survey of 300 business-technology managers shows nine in 10 have new PCs on their project lists. But managers are likely to be stingy with just how many machines they'll buy. In a survey of 300 IT managers by Morgan Stanley, six in 10 say they'll spend the same or less next year on PCs as this year, while about four in 10 say they'll spend more. And a recent Merrill Lynch survey of technology executives finds less-than-enthusiastic responses to the statement, "Our PC purchases will accelerate in 2003": an average 5.2 response on a scale of 1 to 10, with 10 indicating strong agreement.

One factor that fuels the decision to upgrade PCs is upgrading software and operating systems. In the information survey, 78% of respondents say they're interested in upgrading to Windows 2000 desktops, while 52% cite Windows XP as a priority.

Software and operating-system upgrades are key factors driving the decision to upgrade PCs at Rochester Public Schools, a 14,000-student, 24-school district north of Detroit that's two years into a three-year contract to buy desktops, notebooks, and other IT equipment from Dell. The district runs Windows 98 on some Dell Computer PCs and plans to migrate most to Windows XP during the next few years, says Dave Richards, the district's director of technology and information systems.

At some companies, a major deterrent to upgrading is the cost of making sure each machine works on the existing network and gives users the applications needed for their jobs. A large company can spend as much as $250,000 in staff time configuring and testing PCs to add a batch of about 20,000 to an existing IT environment, says Indraj Gill, a director in Dell's OptiPlex desktop product group.

Some companies buy PCs to run new applications. Home Depot Inc. in October signed a deal with Hewlett-Packard for 40,000 Compaq Evo D510 PCs for use in its stores. The home-improvement retailer, which has an average of 60 desktop computers in each of its stores, will use the new PCs to replace older dumb terminals and PCs throughout more than 1,400 locations to support new applications such as E-learning, special orders, and paint and deck design.

Another HP customer, Empresas Publicas de Medellin, Colombia's largest public-utility service company, recently signed a $100 million deal for 200,000 HP D300 PCs that it will resell to consumers and small businesses to get them low-cost access to the Internet.

Computer makers hope to spur demand in part through smaller PCs and flat-panel monitors that better accommodate space-challenged offices of banks, doctors, retail stores, and schools. All three of the largest PC makers--Dell, Hewlett-Packard, and IBM--recently introduced significantly smaller desktops and plan to continue pushing smaller PC sizes to the market.

Dell last week launched its smallest OptiPlex desktop PC, the SX260, which is about half the size of the company's smallest desktop. It contains no PCI slots or connectivity buses, which increases physical security of the machine by providing fewer access points. Pricing for the machine, which runs on Windows 2000 or XP, starts at $599. Dell hopes the small size and price will appeal to businesses that don't have a lot of space for desktops and don't want to distribute notebook computers to their employees.

Dell has weathered the PC slump better than its competitors. Its shipments grew almost 21% to more than 5 million units in the third quarter, while HP slipped 3% and IBM stayed roughly the same, according to research firm Gartner Dataquest.

HP and IBM are designing their newest desktops with customers' space constraints in mind as well. IBM's NetVista S42, which made its debut early last month, takes up to 64% less space than IBM's other NetVista models. The S42 is the first

in a new line of smaller NetVistas that IBM plans to produce; it's priced starting at $949 with an Intel Pentium 4, 1.8-GHz processor, Windows XP Pro, and a 40-Gbyte hard drive.

In September, HP introduced its "ultraslim" Evo D510 and Compaq Evo D310v PCs. For $699, customers can get a D510 with a Celeron 1.8-GHz processor and a 20-Gbyte hard drive.

But shrinking PCs can only do so much to entice buyers who have shrinking PC budgets. Ultimately, it will take a growing economy, not just sleeker designs, to pump up the PC purchases for most companies.