Upcoming Upscale PC Sales Uptick? Q&A with Jon Peddie

Last Updated Mar 5, 2009 11:52 AM EST

Many have apparently given up on the near-term future of PC sales. Not so Jon Peddie, head of Jon Peddie Research. Involved in graphics, multimedia, and technology entertainment markets for decades, they're well plugged in. What the firm has been hearing of late suggests that even vendors are hopeful for the higher ends of the PC markets, and so it issued a report on the subject. We called to get some details.

BNET:You're reporting that PC-based "gaming hardware" is positioned to see a growth uptick by the end of the year. How do you define gaming hardware? Jon Peddie: There are five categories of desktop computing: value, mainstream, performance, enthusiast, and workstation. In our definition, a gaming PC is in the category of the upper half of mainstream, all of performance, and all of enthusiast. Those categories have two things in common. They have a very good high performance processor, and they have a graphic add-in board, not integrated graphics. Usually the user of the system has a pretty good monitor: 19-inch, 1680 resolution is the most common. Those machines generally sell for a minimum of $1000 and as much as $10,000. I was at a conference recently for system integrators and VARs. One of the talks I gave was on PC gaming. There were guys in the audience who said they were typically selling systems where the average price was $12,000.

BNET:But VARs typically sell to companies, not individuals, right? JP: They do both. The company that HP acquired not too long ago, Voodoo, sold PCs in the same price range. They offer gaming machines and are known by word of mouth, if nothing else. Business comes to them. They barely have to advertise. These are the guys fueling the industry. They're going to be tip of the spear when the consumer comes back in. We had one of the HP Blackhawks here; it was an amazing machine. The folks at HP told me in private conversations that they didn't build enough of them. Dell has two gaming machines. They bought Alienware, and Dell has its own gaming machine called the XPS. Gateway also makes gaming machines. I was at an analysts' conference for HP. One guy said, "Which would you rather do? Sell ten $10,000 gaming machines or 200 $500 PCs?" Before the sentence was finished, [someone answered] ten $10,000 ones.

BNET: Sure -- higher margins. JP: Higher margins and the marketing cache. There's something I call the Corvette effect. The Corvette got the [auto buyer] into the showroom. If a person is attracted to something, that means they're inclined to buy. When you have no ability to buy anything, you turn yourself off from buying. If you are emotionally shut down because you lost your job or something has caused you to react or pull back, you don't even think about that. Not now. But as soon as you lose that fear, then consumerism happens.

BNET: Have "ordinary" graphics and other hardware become "gaming" over time because of the general increase in PC power? JP: That's exactly right. That's the side effect of PC gaming machines versus the console. The console is a purpose built single-function device. One of the rationalizations that people use in spending so much on a gaming machine [PC] is that they do real work on it. We have some gaming machines as benchmarks. I was feeling smug and [told some people] that some of these machines were dedicated to gaming. Two of the guys I've known for a while said, "So what? So do I." You don't want to have your gaming machine cluttered up. That will steal cycles in the background. If you want an extreme gaming experience, you almost have to have a dedicated machine. There is a humongous market out there, and it's kind of unknown. Tens and tens of millions of people spend big bucks doing it. And many of these people have a buy cycle of between 12 and 15 months. People who play on less demanding machines have a buy cycle of 24 to 36 months, but they constantly upgrade. They constantly get new computers and/or new graphics boards because the games keep getting more demanding.

BNET:How about the people who are upgrading components? JP: DIY [do-it-yourself] is the trickiest thing to count, because we had to count the individual components. There are probably in the neighborhood of 15 million DIY users, and their buy cycle is 12 to 15 months and their budget is $3,000 to $5,000 in components.

BNET: Why do you think that sales of PC gaming hardware will significantly increase? JP: I think there is a pent-up demand in the market that is being suppressed by the recessionary reaction to pull back. I think that a lot of things will happen during the summer that will turn that attitude around, not the least of which will be the emotional impact of Obama's stimulus. Combined with that, we'll have the introduction of new [graphics] products from AMD, ATI, Nvidia, and Intel. All four of those companies will be promoting those products aggressively.

BNET: On your site you mention Bernanke's remark about the recession ending in 2009, but most forecasts I've been hearing see the bad times going at least into 2010. JP: I'm not predicting the total end of the recession. The point is that the PC gaming market has been a robust market for a while, and our predictions are that it will continue to be. One argument is that people will be spending less money on outside events, so they will stay home and play with their computers more. What we expect to happen is that the allure and excitement of PC gaming will continue, and that it will help fuel the PC market. It won't completely bring the PC market back up [by itself], but it will be a component of bringing it back up, which will kind of raise all ships, so to speak. It will be a major contributor to the wind down of the recession.

BNET:What is the compelling emerging technology? JP: The newest thing in gaming is stereovision, introduced at CES by Nvidia. They weren't the first [to create it], but they productized it better and their solution, which will be the dominant solution, involves new monitors with a refresh rate of 120 hertz. [They create] two images side by side [when viewed] with special glasses. One eye sees one image for 1/60 of a second and the other eye sees another image at 1/60 of a second, and you get the stereoscopic effect. But you have to buy a new monitor. These new monitors are being very aggressively priced at about $300, so it won't be a special pain to get one of these new monitors. That is very affordable, and I think it's one of the things we'll be seeing as a stimulus as well.

BNET:Who else is doing it? JP: ATI also has it, but Nvidia is a stronger marketing company. Their technologies are almost exactly the same. Another company called iZ3D, which is working with ATI. They can work with Nvidia as well. They have two LCD panels, one superimposed on top of the other. Each panel is running at 60 hertz. They have them polarized, one horizontally and one vertically. Then you wear [polarized] glasses [so each eye sees one screen]. Their monitor is I think in the $400 price range.

BNET: Do the games require special programming? JP: The stereographic techniques are extracted at the driver level, and that's something that the graphics manufacturers control. Because [the images] are all [rendered] 3D models, making an offset isn't that difficult. There are tricky things in terms of depth and certain types of objects that are not really in the game, like siting crosshairs. The point is that the game developers didn't have to do anything [to make the 3D effect possible]. The drivers today have made all the games stereographics-capable, but in the future, which is two years away from us, the new games will be designed from the ground up with stereovision in mind. We'll also have a larger installed base of these monitors.

Gaming system image courtesy Alienware.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.