Contents. Hardware Platforms Weekly Issue 43

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1 Hardware Platforms Weekly Issue 43 Introduction to Hardware Platforms Weekly Hardware Platforms Weekly allows Gartner Dataquest analysts to share opinions and analysis of key events as they unfold. To learn more about Gartner's industry-leading products and services, we encourage you to contact us at: or contact your local account executive. You can also visit us at About Gartner Gartner Dataquest is the recognized leader in providing the high-technology and business communities with market intelligence for the semiconductor, computer systems and peripherals, communications, document management, software, e-business, and professional services sectors of the global IT industry. Gartner provides unrivaled thought leadership for more than 10,500 organizations, helping clients achieve their business objectives through the intelligent and efficient use of technology. Additionally, Gartner helps technology companies identify and maximize technology market opportunities. Gartner's technology content and strong brand reach IT professionals globally through Gartner Research, its research and advisory unit; Gartner Services, its custom consulting unit; Gartner Events, including Gartner's renowned Symposia; and at Contents Client Platforms Focus Area... 2 Spotlight on Client Platforms... 2 Recent Spotlight Articles... 2 Correction... 2 Market Highlights... 3 EMEA PC Market Grows 13.8 Percent in 3Q Vendor Highlights... 5 Microsoft's Software Growth Remains Slow... 5 Client Computing... 6 Microsoft's Longhorn Operating System Targets More Desktops... 6 Recently Published Research... 8 Press.gartner.com... 8 Upcoming Gartner Conferences... 8 Gartner, founded in 1979 and headquartered in Stamford, Connecticut, achieved fiscal 2001 revenue of $963 million. Gartner's 4,000 associates, including 1,200 research analysts and consultants, are in more than 90 locations worldwide Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

2 2 Hardware Platforms Weekly, Issue 43 Client Platforms Focus Area Computing hardware is the foundation of information technology, and one of the largest single IT markets. It is also the market segment in which IT managers and vendors face the greatest number of decisions and opportunities, and competition is toughest. Backed by intensive statistical research, this Focus Area addresses the buyers, vendors and technologies that comprise the hardware marketplace. The research and analysis provide key strategic and tactical insights to this segment's vendors, users and investors. The Client Platforms Focus Area can be found on Gartner Dataquest's Web page at Spotlight on Client Platforms Spotlight on Client Platforms provides an overview for a suite of Research Briefs specially commissioned to address a specific topic area. The overview and accompanying briefs can be found on the Client Platforms Focus Area. Recent Spotlight Articles "Client Issues for Client Platforms," 1 October "PC TCO Revised for Longer Life and New Technologies," 17 September "3Q03: Hardware and Systems, Semiconductors Forecast Scenarios," 12 September Correction In reference to the article on the launch of new AXIM PDAs by Dell in the 20 October 2003 Hardware Platforms Weekly: Dell has not announced an indefinite delay in the wireless PDA announced with Good Technology in April 2003.

3 Hardware Platforms Weekly, Issue 43 3 Market Highlights EMEA PC Market Grows 13.8 Percent in 3Q03 The Europe, Middle East and Africa (EMEA) PC market continued to recover during the third quarter of 2003, with shipments up 13.8 percent over the same period in 2002, which again exceeded expectations. Nevertheless, the trend masks a market moving in two directions: International PC vendors experienced the highest growth rates, but local assemblers continue to lose market share (see Table 1). In Western Europe, demand from private buyers and small and midsize businesses (SMBs) was stimulated by aggressive vendor pricing actions, with average sales prices (ASPs) falling 23 percent for desktops and 25 percents for notebooks, compared with the same period in Corporate demand continued to strengthen, too, thanks to favorable exchange rates and vendor discounts. Growth in Eastern Europe has slowed because of upcoming elections in Russia and the high comparison base, which includes the previous year's projects in the European Union (EU) countries. In the Middle East and Africa, a range of new projects boosted growth and benefited most of the top vendors. Among the leading vendors, Hewlett-Packard retained its market lead in all segments. The biggest share gains came from Dell and Acer. Dell's market share gains continue to be centred on build-to-order desktop PCs. Additionally Dell's overall growth was boosted by an increased presence in the home market segment. Acer recorded the strongest growth, as it continued to build share in distribution and retail. Acer's ability to refresh notebook stocks in three weeks, compared to five weeks for its major competitors, has been a significant factor in its third-quarter success. IBM's performance was good despite its absence in the retail market. Table 1 EMEA Personal Computer Shipment Estimates. 3Q03 (Thousands of Units) Company 3Q02 Market Share (%) 3Q02 3Q03 Market Share (%) 3Q03 Change (%) 3Q02-3Q03 HP 1, , Dell , Fujitsu Siemens Acer IBM Others 6, , Total 10, , Data includes Deskbased and Mobile PCs Source: Gartner Dataquest, October 2003 Shipments of private PCs in EMEA grew 11 percent, while professional PCs recorded growth of 15.1 percent, outgrowing the private segment for the first time since the third quarter of All Western European countries increased shipments year over year, except Sweden, where the latest employee purchase program (EPP) cycle adversely influenced growth. In terms of shipment volume, the UK, for the first time, overtook Germany astheregion'slargestpcmarket.growthintheu.k.wasdrivenmainlybydell'ssuccess in the home segment. Germany's growth was slowed by the absence of third-quarter retail promotions and the fact that corporate volume is lagging six months behind the recovery curve of other Western countries. PC shipment growth in France, the third largest market, was mainly the result of strong notebook demand and a number of successful back-toschool promotions (see Table 2).

4 4 Hardware Platforms Weekly, Issue 43 Table 2 EMEA Deskbased and Mobile PC Shipments by Region/Country, 3Q03 (Thousands of Units) 3Q02 3Q03 Change (%) 3Q02-3Q03 United Kingdom 1,627 1, Germany 1,758 1, France 1,130 1, Italy Spain Netherlands Swizerland Sweden Belgium Denmark Norway Austria Finland Greece Portugal Ireland Total Western Europe 7,512 8, Rest of Eastern Europe 960 1, Russia Poland Czech Republic Hungary Total Eastern Europe 2,170 2, Rest of MEA South Africa Turkey Israel Total Middle East and Africa 1,192 1, Total EMEA 10,873 12, Source: Gartner Dataquest (October 2003) Gartner Dataquest Analysis Notebook PCs remained the key driver for EMEA PC market demand in the third quarter of 2003 across all buyer segments. Falling prices and performance improvements continued to bring mobile PCs to the attention of buyers. In terms of processors, Pentium M accounted for more than 26 percent of third-quarter quarter 2003 mobile PC shipments in EMEA and of these, most were Centrino based. Unfortunately falling prices meant that despite an increase in notebook share, revenue decreased considerably from 3Q02' total euro valuation was down by more than 10 percent in the Eurozone. For international vendors the impact was softened by the corresponding decline in input costs, but European local assemblers are slowly being squeezed out of the market. As local assemblers continue to lose share, much of the established CPU channel inventory will need to be sold off at discounts, which is an important variable for fourth-quarter PC demand. The fourth quarter will see PC vendors releasing new notebooks aimed especially at consumers and SMBs. The Media PC Center and the new AMD Athlon 64 processor will be available, but the question remains whether consumers are ready to pay more for pure technology innovations. Over the past year, consumer expectations have been established

5 Hardware Platforms Weekly, Issue 43 5 around high-volume, low-cost products. And although many vendors remain optimistic, we believe the home PC market will continue to be driven almost entirely by price. Even if PC prices rise or stabilize, volume demand will be affected so significantly that vendors might be forced to lower prices to empty their shelves. Vendor Highlights By Isabelle Durand (isabelle.durand@gartner.com) and Meike Escherich (meike.escherich@gartner.com) Microsoft's Software Growth Remains Slow Investors punished Microsoft shares after the vendor indicated that corporate IT spending hasn't accelerated much. Recovery from the economic downturn will be a long, slow process continuing through Event On 23 October 2003, Microsoft issued its earnings report for fiscal 1Q04, ended 30 September The vendor recorded revenue of $8.22 billion, up 6 percent from $7.75 billion in fiscal 1Q03. Earnings per share rose from $0.19 in fiscal 1Q03 to $0.24 in fiscal 1Q04. Deferred revenue dropped by $768 million. On 24 October, the next trading day, Microsoft shares closed down about 8 percent. In its press release, Microsoft noted that "corporate IT spending was slow to improve this quarter." First Take Microsoftisjustoneofmorethan500enterprisesoftwarevendorswhosequarterlyearnings reports Gartner monitors in an effort to gauge how rapidly enterprises are recovering from the economic downturn. Microsoft, IBM, Oracle, Computer Associates International, Compuware, BMC Software, Mercury Interactive and PeopleSoft are just some of the large software vendors active in the enterprise software market whose earnings outlook Gartner has been tracking. Recent vendor earnings reports by enterprise software vendors are confirming Gartner's forecast for growth in enterprise software markets. Gartner has indicated that, although additional declines in IT spending are unlikely to occur in 2003, IT spending probably won't improve significantly, either. Most 2003 budgets contained little, if any, capital investment; instead, they focused on maintenance and making do with established resources. Any additional spending has been postponed to 2004 and beyond. The most likely scenario growth rates for enterprise applications and infrastructure software license spending are starting from a base of negative 3.4 percent in 2002, up 2.2 percent in 2003, up 7 percent in 2004 and up 8 percent in The key drivers in the software market include the following: Buying behavior Gartner research continues to indicate growing pent-up demand for software to improve business performance and IT infrastructure efficiencies. However, buying behavior remains cautious and hinders rapid growth. Price cutting Until now, many vendors were discounting to "whatever it takes" levels to shore up revenue. However, some vendors are attempting to buck this trend as license revenue, instead of total revenue, has become a point of concern for investors. Vendors are caught between investors who are watching their license revenue line, and balky customers who are demanding deep discounts as incentive to buy. Consolidation More pressure from competition and the fight for survival and market share continue to pressure vendors to consolidate businesses, product lines, shared resources and channels.

6 6 Hardware Platforms Weekly, Issue 43 Recommendations Gartner Dataquest expects the software industry will finish its major shakeout and consolidation by the end of 2004, as the economy begins expanding at a slow but more normal pace. Through 2004, lean times will continue as customers seek to minimize their license commitments, affecting all aspects of enterprise software vendors' revenue lines. As a result, we predict that by 2005, only half of the software companies active in 2000 will stillbearoundinthesameform.gartnerrecommendsthefollowingtohelpbuyersmake the most of these lean times: Seek deep expertise in your application providers. Your software vendor must become a trusted advisor by showing deep vertical and business expertise as opposed to horizontal software knowledge. Make financial due diligence part of your normal software selection process. Inventory your current software assets to make sure that your mission-critical software vendors are not in jeopardy of becoming part of the consolidation activities that are occurring in the market. By Joanne Correia (joanne.correia@gartner.com) Recommended Reading and Related Research "Software Markets Start Their Growth as Predicted" Asbusinessconfidencereturns, spending on infrastructure software will recover before applications software. By Joanne Correia "Software Forecast Update, 1H03: Markets Start Their Slow Growth" Gartner Dataquest's forecast provides some planning insight to when and how improvements or delays will manifest themselves. By Joanne Correia and Thomas Topolinski (You may need to sign in or be a Gartner client to access all of this content.) Client Computing Microsoft's Longhorn Operating System Targets More Desktops While Microsoft's latest Windows project, code-named Longhorn, may be eye-catching, it is also an exercise by the vendor to regain control over the desktop market. Event On 27 October 2003, Microsoft previewed the next generation of Windows, Longhorn. Microsoft distributed early code to developers and said that the first beta test is planned for 2H04. First Take At first glance, Microsoft's next generation of Windows adds many of the visual cues that Apple Computer used in recent versions of its OS X operating system (OS). Transparency in windows, active thumbnails and striking visual effects have been the hallmarks of Apple OSs for years. With Longhorn, Microsoft intends to take advantage of 3-D graphics processors to give the OS a more high-tech, Xbox-like look and feel.

7 Hardware Platforms Weekly, Issue 43 7 But Longhorn is about much more than a glitzy look and feel. Many of the features Microsoft is adding in Longhorn will result in increased lock-in to Windows. Microsoft has reached its dominant position in the OS and productivity software markets by controlling application programming interfaces (APIs) and file formats. In the past five years, Microsoft has lost some of that control as browser applications and Java have become more popular, and as an antitrust lawsuit disrupted Microsoft's efforts to bundle its client OS with other applications. Longhorn is Microsoft's attempt to regain control of these markets. Microsoft wants enterprises to write browser applications that take advantage of Longhorn APIs, which means they won't work on non-longhorn browsers. Microsoft also wants more types of data stored directly in the file system. It envisions address books, calendar events and as data replicated directly into the file system. While some vendors may appreciate this, others may not, as it means moving data out of their own proprietary store and into one controlled by Microsoft. Users will benefit via much faster searching and the ability to more easily find related files and items. Enterprises that want to take advantage of the new features will favor applications that comply. Gartner believes that Microsoft's applications will comply early on. While enterprises may want to have their application developers start exploring Longhorn's interfaces, Longhorn is still far from delivered, and should not play a role in shortterm planning. If beta 1 is planned for 2H04, the product is not likely to ship until late 2005 or 2006, and previous experience has shown that a product changes significantly between beta releases. Due to the scope of change (user interface, APIs and Microsoft's Next-Generation Secure Computing Base) as well as the amount of work required, mainstream enterprises will logistically be unable to begin deployments sooner than 18 months after the product ships (that is, 2007 or 2008). Enterprises should embrace Windows XP for new PCs and eliminate Windows 2000 through hardware attrition to insulate themselves from Microsoft's volatile release schedules. Recommended Reading and Related Research By Michael Silver (michael.silver@gartner.com) "Windows Client-OS Road Map: What's in a Code Name?" Enterprises should view Microsoft's plans with more-conservative eyes and should consider adopting a strategy of managed diversity to insulate themselves from changes in Microsoft's road map. By Michael Silver "Keep Windows 2000 Longer, but Don't Skip XP" Microsoft's announcement of an extended support life cycle for Windows 2000 is good news, but enterprises should not plan on skipping Windows XP entirely. By Michael Silver (You may need to sign in or be a Gartner client to access all of this content.)

8 8 Hardware Platforms Weekly, Issue 43 Recently Published Research "All-in-One Printers Boost Market in Latin America" After declining 10.3 percent in 2002, printer shipments in Latin America will show modest growth in 2003, followed by healthier growth in 2004 through Sales of all-in-one printers are boosting growth. (Gartner Dataquest, 30 October 2003 HARD-WW-DP-0580) "Linux Faces Bright Future on Servers" Despite potential legal actions and large competitive installed bases, Linux still holds significant promise from the worldwide server perspective. (Gartner Dataquest, 30 October 2003 HARD-WW-DP-0583) "Oce Makes Good on Cut-Sheet Promise" Oce Printing Systems is striving to improve its cut-sheet, monochrome production printer market share with its new VarioPrint models. On the color side, Oce is struggling with how best to extend its platform. (Gartner Dataquest, 30 October 2003 HARD-WW-DP-0582) "Mexico: Secondary PC Market and Disposal Issues" Mexicohasbegunworkingto produce a "norm" that will set conditions for imported used PC equipment. (Gartner Dataquest, 28 October 2003 HARD-WW-DP-0581) "Worldwide Server Shipments Continue Upward Trend in 3Q03" Theworldwide server market continued to grow in the third quarter of 2003 with shipments of 1.37 million units. It recorded its third consecutive quarter of double-digit growth compared with the same quarter of (Gartner Dataquest, 28 October 2003 HARD-WW-DA-0106) Press.gartner.com Press.gartner.com is designed to guide you through the correct procedure of obtaining a Gartner Dataquest analyst's quote. If your company would like to issue a press release quoting one of our analysts, you must submit your request to quote.requests@gartner.com. Standard requests will be approved within 48 hours. Upcoming Gartner Conferences For more information on Gartner conferences, contact Ashley Pearce at or You can also ashley.pearce@gartner.com or visit Gartner and Gartner Dataquest host the IT industry's most respected conferences and strategic forums in locations around the world. For More Information... In the United States: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Gartner Interactive: The content herein is often based on late-breaking events whose sources are believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The conclusions, projections and recommendations represent Gartner's initial analysis. As a result, our positions are subject to refinements or major changes as Gartner analysts gather more information and perform further analysis. Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden Gartner, Inc. and/or its Affiliates. All Rights Reserved