Combined with strong point-of-sale data from NPDs Retail Tracking Service, where IT sales overall were up 14 percent and positive performance from NPD’s Distributor Tracking Service, where December sales were up nearly 16 percent, it does appear that sales are looking up across all the major customer segments heading into 2010. Of course, we do want to temper the improving results we have reported with the recognition that comparisons against the generational meltdown during the fourth quarter of 2008 are likely to be a bit flawed and that we do need to see these trends continue through the first quarter of2010 to be certain that these are not just false positives.

However, inside the reseller data we see a number of positive data trends that leave us with some level of optimism. Unlike consumer sales, reseller improvement was more broad-based and not just the result of the PC land rush we saw post-Windows 7. Sure both desktops and notebooks performed admirably, but unlike the consumer market where those two categories accounted for 50 percent of consumer spending in December the reseller channel is more diverse depending on PC clients for only about 16 percent of total volume in December. More exciting is the up-tick in average prices that are becoming more pronounced through this channel. With unit volume remaining tepid the gradual growth in ASPs we have seen leads one to believe that SMBs are buying core products that are essential to their business growth and are willing to spend on those as opposed to just general spending on IT products. A couple of examples will serve us well here. First is the server market, where we saw ASPs move to over $3000 in the fourth quarter. This is part of a trend that extends back into mid-2008 as we have seen share move into higher-priced servers (over $4000 products accounted for over 20 percent of sales volume) a strong indicator, when combined with the low levels of unit growth, that strategic buying of core hardware continues while less crucial purchases continue to be postponed. In networking devices we see evidence of this trend as well. While the fourth quarter always tends to deliver higher ASPs in 2009 wired network devices saw a 22 percent jump over third quarter selling prices, far ahead of the 2 percent increase we have seen in the fourth quarter of both 2008 and 2007. The net result was a nice revenue increase in December for wired network devices despite anemic unit volume growth, which has been traditionally the engine that drives revenue increases in IT.

All these measures put together while, we want to emphasize again, are at least partly the result of seasonality and the weak comparisons to 2009, ought to at least give the marketplace the confidence to expect better times ahead as we move into 2010.

In conclusion, this should signal the death of the whole slate/pad/tablet concept, and now Apple has put a stake in the heart of that concept. However at $499, with its media directed functionality, it could make a play for the companion computing market the PC world discovered in 2009 with the netbook. And with unit volumes for notebooks and netbooks up 60 percent during the holiday season according to NPD’s Retail Tracking Service, there is a huge unit opportunity for Apple that they have now chosen to attack.

And to reinforce that notion, this year’s trends were not products likely to pay the bills in 2010.  In 2009 netbooks were all the rage and clearly they were focused on paying the bills that year.  We didn’t have that focus this year.  But for 2010 3DTV and tablets are not likely to be mainstream devices, although certainly tablets (in the broadest sense of the word) will be in more consumers hands by the end of the year than 3DTVs, and have more impact in 2010 as well.  Longer term, a healthy TV hardware market, leveraging growing and innovative content, and distribution platforms will be the number one factor in returning the CE business to a more healthy and stable growth rate than we have seen in the past.

Desktops, along with camcorders, were the two big surprise hit holiday categories. Growth in desktops, while surprising, wasn’t completely out of the blue, since sales have been strong since the release of Windows 7. Notebooks were the best performing big category of 2009 as consumers and retailers have been focused on mobility as a huge growth opportunity. Despite the price deflating impact of netbooks, unit growth throughout 2009, but especially during this holiday season, was more than enough to offset those falling prices to generate positive revenues. Full-size notebooks were mightily impacted by the rise of netbooks with ASPs falling to remain competitive. In fact, this holiday season we saw upwards of 95 percent of all full-size notebooks sell for less than $800.

Camcorder results, driven especially by low-cost flash models under $300, posted unit increases of 50 percent and double-digit revenue increases as well. Increases in distribution, aggressive promotion, and an increase in the brands and SKUs available at retail all played into this impressive result. What makes this more impressive is that camcorders have been a very slow growth category for a number years, characterized by rapid technology changes (tape to DVD to HDD in rapid succession) and the conventional wisdom holds that video on the phone is good enough for most people. Apparently that is not quite accurate.

Televisions were a drag on overall results as, unlike the notebook segment, falling prices failed to spur enough demand to generate positive revenue. Of course that was nothing new for flat-panel sales in 2009 where the vast majority of the monthly results showed negative year-over-year revenue trends. During the holiday season, 32-inch LCD was the clear winner showing growth of more than 50 percent in units and slightly more than 10 percent in revenue. In comparison, larger screens exhibited extremely poor results. Every product type range above 40 inches (with the exception of plasma over 54 inches but including 40-42 inch LCD, 46-47 inch LCD, over 50-inch LCD, 42-inch plasma, and 50-inch plasma) showed year-over-year revenue declines for the holiday season.

All-in-all there just wasn’t a lot to crow about when looking at 2009 holiday results, unless you are comparing to 2008. Then in that case this past holiday season fulfilled all your wishes, hopes, and dreams (and then some).

With three weeks of holiday shopping concluded we can report that sales continue to track along these same lines. While we aren’t going to report specific numbers here we can say that total sales volumes, in dollars, are tracking around flat levels ( for complete holidays sales results come see us at our Just the Facts session in conjunction with CEA on January 7). As we noted in our November press release, we have seen some improving performances among the group of large categories that sit below PCs and TVs in volume levels. Segments such as DSLR, point-and-shoot digital cameras, wireless networking, multi-function printers, and camcorders are performing better than earlier in the year, providing a solid boost to the overall industry volumes.

Among the two largest categories, flat-panel TVs and PCs, we continue to see performance moving in opposite directions. While unit volume growth has remained in double-digits, the pressure from the slide in ASPs has continued to force revenue growth into negative territory. PCs, on the other hand, have been the growth story in holiday 2009, helping to keep the overall market for consumer technology revenue stable. Despite the same level of precipitous price declines that we saw in November and on Black Friday, notebook computers have continued to deliver revenue increases comparable to what we saw during those earlier periods. Of course, the falling ASPs have also generated enormous unit increases as well. Desktops have also remained on the same strong growth path we noted during November adding further strength to the PC market.

As we said, overall technology sales seem to be tracking towards a flat revenue growth year, probably a result better than anyone might have anticipated three months ago. However, with the two most important selling weeks yet to report there remains enough uncertainty to question where the final results will end up.

See you in Vegas, when we sum up the holiday results, and don’t forget to join us at our reception on the first night of CES at the Bellagio.

There are a couple of reasons why we expect this snowstorm to have a limited impact. First, and foremost, the calendar is kind to retail this year (as was the snow). With Christmas falling on a Friday the industry has an entire week of shopping days to give consumers time to catch up. And anecdotal reports are that consumers have already been out in droves on Monday to catch up on the missed shopping days. Here in Northern Virginia, where I live and where 20 inches of snow easily overwhelms both the residents and the transportation infrastructure, there were reports of gridlock at area malls including waits of 60 minutes to exit mall parking lots

The second reason is the high percentage of online shopping that occurs in Tech. Snowbound this year did not mean cut-off this year. Online retailers and brick and mortar retail sites jumped on the disruption caused by the snowstorm to increase email to consumers, offering shipping deals, and fast delivery to make up for the lost shopping opportunity of last weekend to help ensure that consumers gift choices would make it in time for the holiday. This targeted electronics marketing only adds to our conviction, as we expressed in our Black Friday Report this year, that ecommerce continues to make a real dent into the consumers perception of how, when, and where they shop for the holiday.

The two main story lines of 2009, notebooks and flat-panel TVs, remained on the same arc in November. Notebook unit volumes were through the roof and despite the crashing ASPs, were able to generate positive revenue again in November. Flat-panels, with prices falling just as fast, couldn’t deliver the unit increases notebooks did and saw revenue drop with a thud. Interestingly though, these two categories nearly offset each other. Together they accounted for about 40 percent of the dollars in November, representing a little less than 3 percent dollar growth from last year. The underlying message of that statement is that essentially the rest of the marketplace was flat, and that is the most interesting aspect of this month’s data, considering how focused the industry has been on the performance of the two biggest segments. That is because the renewal of a bit of growth outside notebooks and TVs represents a change in the trends we have seen in 2009 (and in prior years as well) and, if it holds, could be the clearest sign yet that consumers are resuming broad-based purchasing of CE in volumes large enough to return the market to a more healthy growth path.

For most of 2009 (except for April/May 2009, which had very tough comparisons to the Bush tax refund in 2008) notebook and TV revenue growth has been around 400 basis points better than the overall market place. In October, and now in November, we have seen that difference dip below 300 basis points. In October, the overall markets 2.7 percent decline was measured against a.4 percent decline in notebooks and TVs, a difference of 230 basis points. The November difference in growth was a bit higher, around280 points, likely the result of holiday promotions but still far below the trend line.

Where November differed was the appearance of new categories starting to show positive trends. Wireless networking equipment showed its strongest positive revenue growth month of the year, digital SLR cameras were positive for the third month in a row after months of declining revenue, and multi-function printers, as well as single-function laser printers, showed positive revenue trends. Both home theater systems and stereo receivers were flat or positive in November as were camcorders, mice, and desktop PCs. If the two largest categories continue to contribute very little to the overall growth of the market it will be up to product categories like these, and results like the ones we have seen in November, to keep the consumer technology market healthy. The sales balance has been somewhat unhealthy over the past 18 months or so as notebooks and TVs increasingly dominated the marketplace. Some restoration of this balance, as we saw dramatically in November, but have been building towards over the last couple of months, is essential if 2010 is to see a renewal of industry growth.

The pressure has been on retail, but more specifically the Technology sector for weeks, even months, as the mainstream media has been focusing on what consumers are going to buy, how much they are going to spend, and whether or not it’s going to help the overall U.S. economy. Well, Black Friday came and went and I am not sure that what I saw is going to help predict the future.

So here are a few things I noticed:

• The lines appeared about the same or slightly longer than last year. 
• Customers were still in line waiting to get into stores an hour after they opened.  Best Buy, Target, and Walmart all had very strong traffic.  Walmart was a little harder to tell as this year’s “let them in” policy meant it was hard to say how many people were really waiting for the 5am Doorbusters.  
• At least some of the maintenance, or growth, in customers is likely attributable to the demise of Circuit City.  Their customers had to go somewhere and it appears they helped bolster everybody’s lines.  
• In the general merchandise stores that we visited, like Target and Walmart, the electronics department was probably the busiest.  

Unfortunately, the first four hours of sales on the unofficial first day of holiday shopping have never been a good bellwether for the overall economy, and are probably less relevant today than ever. There are a number of factors at play here. Certainly the tremendous amount of Black Friday-like sales that preceded Friday’s shopping bonanza stripped some of the excitement and demand from Black Friday. Consumers in the opening hours of Black Friday are the ones willing to wait in line for hours to get the products we have promoted and advertised to them. They are not tire kickers, or browsers, they are buyers with a purpose, focused on the products we have directed them to. It is pretty easy to sell heat lamps to the Eskimos and just as easy as well to sell $200 notebooks and $300 32” LCD’s to a select few customers. The part we want to know is what else did they buy and that isn’t readily apparent from the first four hours of shopping. We need to wait for the release of NPD’s weekly data and our Black Friday webinar with DisplaySearch to get a clearer picture of all the results.

Of course the online revolution has also zapped some of the predictive nature of Black Friday’s in-store activity away. Not just Amazon or Newegg, but just about every tech retailer has been aggressively driving consumers to their Web site to buy at Black Friday prices all month (and some have been selling the actual Black Friday goods online as well). All-in-all Black Friday is a great day for tech because it is has helped cement technology as a leading retail consumer category, but it certainly doesn’t provide the holiday answers that everyone wants to hear.

1. Inventory prep has been spectacular. This past weekend I happened by a Best Buy store (as you can imagine I do this pretty often) and there was not one single PC for sale with Vista on it.  Lots of Windows 7 machines, however, all of which were marked “not for sale until October 22.”  Someone did a great job in the supply chain making this happen. This will give Win 7 a tremendous boost out of the gate.

 

2. First ad deals have been well-thought out and innovative.  At their initial introduction I was very critical of MS pricing for Win7 upgrades.  Over $100 is far too much to move the population rapidly off of Vista (and according to NPD’s 2009 Household Penetration Study – 25 percent of households have a desktop running Vista and 40 percent  have a notebook with Vista  - so there are a lot of folks to move).  But, I think the initial offer in some of last Sunday’s circulars, which offered a Win7 upgrade for just $50 ($70 off) with the purchase of a Win7 PC, is brilliant.  It gives incentive to some of that huge XP installed base to do the right thing and upgrade into a new PC while offering them a way to cost-effectively upgrade that companion notebook they have bought in the last two and one-half years which is running Vista.   We hope to see lots more innovative offers focused on those multi-PC households as they represent the biggest opportunity for new sales and upgrades as well.

 

3. The work done with PC OEMs to align product cycles with Win 7 has also been spectacular.  Never before has the industry launched such a variety of new form factors, price points, technology upgrades, and design innovations at one time. With Win7 delivering improved capabilities in power management, networking, media, and touch the variety of systems available appeal to a wider range of buyers than ever before. This selection ought to help drive PC sales through the holiday season, not just as replacements, but to get consumers to begin rethinking what the right level (i.e. much higher) of PC ownership and usage should be in their home and entice them to reconnect more strongly with the PC experience.

As PC sales and boxed copy sales begin today we will keep our eye on the sales trends in our retail tracking service to get confirmation that consumers also see the change Win 7 has brought to the PC industry.  We expect to see increased marketing and merchandising focused on the upgrade buyer and the multi-PC household opportunity that dovetails with the Win 7 story.  And of course we will be waiting with bated breath for the opening of the new Microsoft stores and how Microsoft tries to interpret the retail interaction between consumer and PC and the buying experience.

No discussion about Microsoft ever leaves everyone happy. In this case I am mightily disappointed in a couple of aspects of Microsoft’s upgrade plans for non-PC buyers. First, is the pricing on the Windows 7 Home Premium upgrade. Besides the fact that $119 is a price point that fits nowhere in these economic times, it is still way too much for the software. While I acknowledge that this is down from Vista pricing, that is damning with faint praise. It is in Microsoft’s best interests to erase all vestiges of Vista from consumers’ homes, and by making the upgrade expensive (and a bit painful, more on that in a moment) Microsoft is creating a large disincentive for consumers to move to a far superior platform with a better user experience. Doubling down on the disappointment is the fact that this is only a one user license. In a world (at least in the U.S.) where most homes are moving into a multiple PC environment it would enhance the consumer home experience if they could upgrade all their home PCs at a single low price with a single boxed purchase. Although I don’t think it is exactly equivalent, Apple’s Snow Leopard pricing model ($29 for a one user license and $49 for a five user license) is much more appropriate to driving adoption and raising customer satisfaction levels. This is a direction I would have much preferred to see Microsoft head into.

Finally, what was interesting? The intention of a limited availability sale on Windows 7 (at $49 per copy) fulfilled only through the channel is a boon to the channel and the industry. It certainly addresses at least some of our pricing concerns and adds a few benefits to the marketplace. A program like this will deliver incremental customer traffic at retail, early customer excitement about a new product to the industry, and should prove to be a great early indicator as to customer demand and interest. Maybe some of the learning here could lead to some revisions in the go-to market planning down the road.