Micron Electronics last week became the first large PC manufacturer to exit the business because of the recent sales slump, but it is not expected to be the last. Pricing pressures and a slowing market are squeezing the lifeblood out of second and third-tier manufacturers. In the end, these companies may be forced to seek a buyer or, a more likely end, simply walk away from the business. "This certainly is the year for consolidation in the industry, certainly for some of the weaker firms," said IDC analyst Roger Kay. Micron Electronics was one of the companies I had designated for oblivion." Dataquest analyst Martin Reynolds echoed the concern, saying that "The companies with less resolve to remain in this business are going to disappear." Picking the next candidate for oblivion, however, is not an easy matter. Kay and Technology Business Research analyst Lindy Lesperance named Emachines as a potential casualty. The company recently reported worse-than-expected earnings and replaced its chief executive. To compound matters, the outlook isn't great. Emachines specialises in low-cost machines for the US retail market and has low profit margins. A company representative declined to comment, citing the fact that the company is in a quiet period prior to its quarterly earnings announcement. "Probably the most vulnerable company out there now that Micron is gone is Emachines," said Lesperance. "They're also losing money hand over fist right now." Other companies are also candidates for consolidation. "If you look at the second five of the top ten, any of those guys are up for consideration," Lesperance said. Still, while other manufacturers face the same pressures that toppled Micron, they also are different in key areas. Gateway, for example, faces the pricing pressures of the US retail market, but has a far larger market share than Micron. Apple Computer had a recent loss, but remains buoyed by a loyal fan base. Fujitsu-Siemens is nonexistent in the US domestic market, but continues to snag customers in Europe. Another 22 PC makers shared between 0.2 percent and 1.7 percent of the market. Hundreds more claim even less of a footprint, according to Dataquest. Lesperance sees Toshiba in a weakened position. "I think Toshiba has an interesting story in the marketplace, but they're also vulnerable. A lot of their share comes from the portables, but they're going to see a lot of competition there, particularly from Dell." Toshiba also has been losing share in the notebook market, falling from last summer's number two ranking in US retail to the number four position in January, according to NPD Intelect. In overall worldwide notebook sales, IBM knocked Toshiba out of the top spot last year. However, few companies have plunged from a number two market spot to the glue factory without intervening steps and strategy shifts. Reynolds looked higher up the PC food chain for fallout this year, which he said is inevitable. For companies such as Compaq, Hewlett-Packard and IBM, PCs are in some ways a necessary evil. These companies need to continue to sell desktops to land large corporate deals. Profit, especially for IBM, then comes from selling Unix servers or services. But direct companies like Dell need the PC, and will put price pressure on these other companies to maintain their business. "Dell and Gateway really have nowhere to go," Reynolds said. "They're PC companies. They'll do whatever it takes to survive. We feel that there will be a price war in the United States in 2001, as direct [sellers] Dell and Gateway endeavour to gain share from IBM, HP and Compaq. They will lower margins to do this, which will cause others to give serious thought about how they run their PC businesses." ARS analyst Toni Dubois called the current PC sales climate "a pricing bloodbath". Between February and March, "I have seen as much as 40 percent discounts on Pentium III models from Dell," she said. During the same period Dell lowered prices on Pentium 4 computers by 8 percent -- a cut that Dubois said substantially pulled Dell ahead of any competitor in price discounts. "Dell has come out and said they are going to be the cheapest," Dubois said. "Gateway also is competitive, but focused more recently on profitability versus market share." In this viciously cutthroat pricing environment, Reynolds speculated that HP and IBM are both strong candidates for exiting the PC business. "If you look at HP and IBM, PCs are not an important part of their lifeblood," he said. "PCs are an interesting part of their business, but that's not necessarily where they make their money." In the case of IBM, which many analysts expect to lose money on PCs in the first quarter, spinning off its PC operation would be the way to go. "That's what they did with their Lexmark printer business," Reynolds said. Kay, however, wondered whether full-service companies could really exit their PC businesses without hurting sales of larger systems. "Once you let Dell into an account, it's pretty hard to get them out," he noted. If Dell, for example, sold PCs to a company that also buys servers and services from IBM, it could potentially cannibalise low-end server and storage sales away from IBM. Lesperance agreed. "IBM's PC business allows them to go to a lot of customers with a total solution, which brings in a lot of services revenue for them." See techTrader for technology investment news, plus quotes and research. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the techTrader forum Let the editors know what you think in the Mailroom. And read what others have said.