Tax break makes new PC purchases “attractive” for small Canadian firms

Canadian small businesses held off on buying new computers in the first quarter of 2009, but that situation may change significantly before the year is out.

The federal government’s stimulus package may boost PC sales as the year comes to a close, an analyst report released Tuesday suggests.

As expected, the sharp decrease in spending, triggered by the economic downturn, kept overall PC sales low in Q1 of 2009, noted the report from Toronto-based IDC Canada.

Both desktop and notebook computer sales were down 14 per cent compared to the first quarter of 2008.

Computer sales to small businesses — those with fewer than 500 employees — were even harder hit, dropping nearly 25 per cent in one year.

That decline can be ascribed to the economic downturn, says Paul Edwards, director of SMB and channels research at IDC.

The drop in PC purchases was even more marked among small companies than consumers.

This might be explained by the absence of a compelling reason to upgrade among SMBs, says Tim Brunt, senior analyst, personal computing and technology at IDC. (Of the 1.35 million computers shipped over the quarter, onlyaround 297,000 were bought by small businesses).

“There hasn’t been a technological reason to switch machines for quite some time, other than going to a smaller form factor,” Brunt says.

But that may change as the year progresses.

The federal government’s offer of a 100 per cent capital cost allowance on new computers purchased by businesses between Jan. 27, 2009 and Feb. 1, 2011 could revive ailing computer sales. As part of the Conservative government’s economic stimulus package, the plan gives a full tax refund to firms that choose to spend on new PCs.

For at least one Canadian small business that’s incentive enough to make the investment.

Datazoom Solutions Inc. made its last computer purchase early in 2008. The Mississauga, Ont. company creates software for healthcare clinicians and clinical researchers.

“We didn’t hire new people last year, so there was no need to acquire new laptops,” says Rajesh Dixit, director of consulting at the firm. “And our old machines have been working well so far.”

In addition, like thousands of other Canadian firms, Datazoom is cutting expenditure in various areas.

The company currently has two desktops and six laptops and will consider buying four or five new laptops or tablet PCs in the near future.The healthcare sector, and his firm’s business operations, are likely to grow in 2010, he says.

Such business growth — coupled with the tax break — would provide the necessary impetus to make new PC purchases, suggests Dixit. “We’ll buy sooner rather than later.”

And similar reasoning is likely to be adopted by many other small Canadian firms.

“If you can get your money back, this is something you’ll want to buy towards the end of the year,” Brunt says. “You don’t want the government to be holding on to your money for too long.”

Small businesses tended to favour mobile computers purchases in the first quarter of 2009. While desktop PC sales were down 35 per cent, portable PC purchases were down just 15 per cent year-over-year.

“As small companies move to become more mobile, the smaller form factor makes sense,” Edwards says. “It’s the main point of differentiation in the PC market right now.”

Even netbooks, or mini-notebooks, are finding their way into small businesses. These firms account for 14 per cent of all netbooks purchased during the first part of 2009. The ultra-portable computers continue to grab a larger share of the overall portables market, currently dominated by Acer with 58.9 per cent of the market share.

HP has the largest share of the overall client PC market with 22.8 percent, but is followed closely by Dell at 21.6 per cent of share. Acer is the number one portable PC seller with a market share of 20.5 per cent.

Computer manufacturers are unveiling their own stimulus packages in an effort to boost sales despite the recession, Brunt says. Incentives such as zero-per cent financing and delayed costs are becoming more common.

“They’re getting creative,” he says. “It’s almost like they’re selling a car.”

Computer retailers are advertising both government and manufacturer incentives alike to try to stir up business, he adds.

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