U.S. Public Sector PC Market Expands in 2Q03 But Shows Signs of Weakness, According to IDC

FRAMINGHAM, MA – SEPTEMBER 8, 2003 – Despite a remarkable sequential increase in shipments, the market for PCs in the U.S. public sector is showing signs of weakness. According to IDC's Quarterly Public Sector PC Tracker, PC shipments to this market, which includes the federal government, state and local governments, K-12 and higher education institutions, grew 34.8% sequentially in the second quarter of 2003 to 2.4 million units and 26.5% in customer spending terms to $2.66 billion. From a year-over-year perspective, unit shipments expanded by 2.2%, while customer spending contracted by 10.7%.

"Although the market performed well sequentially with a double-digit growth rate, it is still slightly below historical rates

of the past two years," said David Daoud, senior analyst at IDC. "There are worrisome signs of a market that could turn negative in 2004, and possibly sooner. The year-over-year growth rates have decelerated to the low single-digits over the past four quarters and an aggressive pricing environment has resulted in shrinking revenues from this market."

By segment, the education market performed well, growing sequentially above historical rates. But a year-on-year analysis shows sluggish unit performance and declining value. Although the K-12 and higher education markets had similar performances on the sequential basis, the K-12 segment showed a weaker performance on a year-on-year basis. "The difference is that the higher education sector is generally more sheltered from the financial difficulties facing K-12 educational institutions. There have been tuition and fee increases in many universities and colleges and enrollments in higher ed are also up. The combination of these two factors has been helping the higher education sector withstand the sort of financial crisis facing its K-12 counterpart," said Daoud.

The government segment ended the quarter with single-digit positive growth, with the exception of the year-on-year customer spending rate, which fell 4.9%, reflecting continued price erosion. The federal government market showed the best performance against its 2Q02 results, while the state and local government market fell 12.8% year-on-year in unit terms. The federal government market is clearly benefiting from increased funding, although the primary beneficiary is the defense department and federal agencies in charge of law enforcement and homeland security. As for state and local entities, their budget crises are likely to hurt them for the foreseeable future.

From a competitive standpoint, Dell, Apple, and Gateway improved their shares of the U.S. public sector market. Although Dell maintained its overall leadership in the segment, Apple outperformed the market by gaining 3.2 points. Apple's focus has been on its iBook offering, which has done well with K-12 educational institutions and enabled the company to regain the number 1 spot in the overall education portable PC market. Apple's success was based on products compelling to a population of young end users who have specific form factor needs. With a 1.7 point market-share gain, Gateway's focus on pricing helped it make inroads in the highly competitive education market, while Dell gained 1.6 points thanks to a global offering of products, services, applications and support.

IDC's U.S. Quarterly Public Sector PC Tracker gathers PC market data in the United States by vendor, form factor, brand, processor brand and speed, and user segment. The research is part of the wider Worldwide and U.S. Quarterly PC Tracker, which includes historical and forecast trend analysis as well as price band and installed base data.

For more information, or to subscribe to the research, please contact Kathy Nagamine at 650-962-6423 or knagamine@idc.com.

About IDC

IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. Additional information can be found at www.idc.com.

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