Many PC suppliers have operated at near-zero margins since 2001. PC vendors' problems have been exacerbated by an apparent inability to differentiate their product offerings through anything except price.

At the same time improvements in hardware performance have outstripped the growth in requirements from mainstream applications, allowing users to buy cheaper and more basic machines.

Earlier cost cutting has left vendor sales channels and agents unable to adequately communicate the value of PCs to potential customers.

Despite the price declines, Microsoft and Intel have maintained their per PC revenues at near constant levels over the last two to three years.

With most vendors finding it increasingly difficult to fund further price reductions from internal costs, Gartner expects that Microsoft and Intel will also come under increasing pressure to innovate to maintain market growth and profitability from PCs.