XP marks the spot

While executives of IT companies have attempted to talk up their industry for the first half of 2001, it was pretty clear when Dell made its first operating loss for eight years in August that there was no swift recovery in sight.

Dell had cut staff in its first quarter to attempt to turn around its PC business, but made a net loss of $101m (£67.3m), contrasted to a net profit of $603m (£402m) in the same period last year.

The Dell Corporation refused to follow other companies by talking up its future, instead predicting that the PC business was likely to decline further and that no swift recovery could be expected until 2002.

While Dell suffered a major hiccup, things proved far worse for its rival Gateway, which not only made losses, but decided to exit from the European market and cut its worldwide staffing levels by 25 per cent. Gateway remains the number four PC outfit in its home market, the US.

Prior to these announcements, market research company The Gartner Group reported that for the first time since 1986, PC unit shipments fell by 1.9 per cent.

In late August, chip giant Intel, which had cut the price of its Pentium 4 processors by as much as 54 per cent during the month, and revamped its entire strategy to concentrate on these processors and faster versions of its Celeron chips, also showed uncertainty about how fast the market would rebound. The company highlighted new markets such as India and China as brave new worlds ready to fuel an upturn in sales of microprocessors.

Throughout the year, prices of DRAM have fallen, and that caused large Japanese manufacturers, including Toshiba and NEC, to announce big layoffs and retrenchment in their manufacturing plans. In Korea, the falling price of DRAM caused Hynix - formerly Hyundai Semiconductors and one of the biggest memory manufacturers in the world - to flounder in a sea of debt.

At the time of writing, it is uncertain whether Hynix's creditors will approve restructuring plans.

The tide may be turning, but it's probably buyers of PCs for big business that will give the industry the essential push. The market is hoping that the introduction of Office XP and the Windows XP operating system will cause a switch to faster CPUs that require larger memory subsystems next year.

Windows XP needs at least 128MB of memory to run at a reasonable speed, and as the memory manufacturers are slowly phasing out chips that support these modules, 256MB is likely to be the norm for an XP-capable PC.

Although few technically minded people are convinced that 2GHz, 2.2GHz and even 2.4GHz processors are essential to use word processors, pick up email, browse the internet or create presentations and build databases, the introduction of XP and more especially Office XP will encourage large businesses to move.

While Office XP has built-in backwards compatibility with previous versions of Microsoft Office, those at the vanguard of upgrading their PCs - usually investment banks, insurance companies, multinationals and other commercial ventures - like their customers and suppliers to use the same software. After all, it makes swapping files easier.

The Gartner Group expressed scepticism over whether this would occur as swiftly as it happened before. Those corporations that had shifted to Windows 2000, with the attendant hardware investment, were unlikely to go along with Microsoft's plans and switch to XP. That is because Windows 2000 was a sea change from Windows NT, demanding faster machines and more memory.

Although big business needs to be at the leading edge of technology, it does not want to be at the beck and call of the Wintel alliance every time Intel or Microsoft decide it's time to boost their revenues with new introductions.

In fact, the frenetic nature of the price war between Intel and AMD may have meant reduced gross profit margins for the big IT multinationals, but that's been to the benefit of the end-user.

Intel's introduction of a 2GHz processor in August, coupled with the fact that it will reach 2.4GHz by early next year, with a subsequent fall in prices, means better-than-ever bargains for people buying or upgrading their PCs.

Whether they like it or not, by this time next year, Windows XP will be pervasive. Microsoft has realised that it needs to make sure the next upgrade to XP will cater to everyone's needs, whether they're using Windows 2000, 98, Me or 95.

A universal code base for a Microsoft operating system has been on the Seattle company's wish list ever since the introduction of Windows 95.

Microsoft is also promising that when the 64bit x86 processors, whether from AMD or Intel, start to become more universally accepted, with 2002 being the year when things finally start to happen, XP will be more than capable of catering to the needs of those end-users too.

In the meantime, what everyone seems to want post-XP is stability on both a hardware and a software level for at least two years, and preferably three. Many don't feel that they wish to be carried along by a remorseless upgrade route, with all the costs that entails, every 18 months or less.

The future may be looking brighter, but that's no grounds for spending in the wild way we've all done before.