Manufacturers dealing solely in PCs are doomed to extinction, Gartner industry experts warned today.

Speaking at the System Builder Conference in Monaco, Ranjit Atwal, senior analyst at Gartner, told vnunet.com that margins on hardware are falling.

Unless companies have a global manufacturing and sales machine behind them, they will not be able to compete with Dell and HP, according to Atwal.

European manufacturers are currently being hit particularly hard by this because of the strength of the euro.

"The money is disappearing fast, especially on hardware," he said. "Manufacturers have got to look at additional revenue streams; those just producing standard products will not survive in the long run."

Atwal suggested that local PC manufacturers need to move quickly into offering additional software services and consultancy. Retail also offered a profitable way for companies to survive.

Desktop PC manufacturers are being hit increasingly hard, according to the analyst, and are finding it difficult to compete with South East Asian producers with lower labour costs and a shorter supply chain.

Gartner indicated that laptops are the only growth sector of the market, but warned that competition from Asia in this sector is also strong.

Carolyn Worth, marketing manager at UK manufacturer Evesham, said: "I agree 100 per cent that diversification is key. Things are not that bad, however. The Home Computing Initiative is proving incredibly popular and is driving a lot of sales."

The HCI is a government programme that lets employers contribute to the costs of staff buying computers. Set up in 1999 it allows companies to write off the cost of a computer against tax.