Worldwide PC shipments are on pace to total 233.7 million units in 2006, a 10.5 percent increase from 2005, however worldwide PC revenue is expected to reach $198.3 billion, a 2.5 percent decline, according to a preliminary forecast by Gartner, Inc.

"Unit growth will continue to be price driven for the next several quarters as PC replacement activity wanes and the battle between Intel and AMD escalates," said George Shiffler, research director for Gartner Dataquest's Client Platforms research program. "Steeper PC price declines will spur unit growth in mature markets like the United States over the near term, but growth will eventually slow to mid-single digits in these markets as PC replacements fade and saturation becomes more problematic. Vista's eventual release next year could stimulate some added growth, but we remain skeptical of Vista's impact."

"Steeper price declines will also drive faster growth in emerging markets," said Mikako Kitagawa, principal analyst for Gartner Dataquest's Client Platforms research program. "Growth should be more sustainable in these markets due to low penetration, expanding economies, and a growing number of PC ownership initiatives. Emerging markets are expected to post solid double-digit growth during the next two years."

PCs will have a difficult time competing for consumer wallet share this holiday season. Excess production capacity has lowered LCD panel prices, and that has dropped the prices of LCD TVs. The prices of many other consumer "life-style" electronics are falling as well, putting them in direct price competition with PCs.

"The battle between PCs and LCD TVs in particular is likely to be especially intense over the holiday season given that LCD TVs will almost certainly be backed by aggressive holiday marketing and even lower prices," Mr. Shiffler said. "Even the latest multifunction mobile phones could pose a threat with some buyers considering the prices of these phones and accompanying service contract is increasingly on par with low-end PCs. Vista's absence will definitely make it harder for PC vendors to maintain consumer interest in PCs without cutting prices."