The personal computer (PC) market is in a slump. Declining sales, job cuts and corporate profit warnings characterise the sector, which employs more than 10,000 in the Republic.

Dell and Gateway are cutting costs and Compaq chief executive, Mr Michael Capellas, acknowledged this week that PCs were gradually becoming the old economy of the information technology sector.

So what does it mean for the sector and the Irish PC market?

Apple was one of the first PC makers to set up shop here in the early 1980s and now employs almost 1,100 people in Cork. In common with its competitors, the company is feeling the pain and its shares have plummeted to just$20, down from more than $60 in October.

However, its not all doom and gloom, according to Mr Brendan O'Sullivan, Dublin-born senior director at Apple's European headquarters in Paris.

"The Christmas quarter across the world was poor and everyone suffered," he says. "But there hasn't been the bloodbath in pricing that was expected.

"During the Christmas quarter we had some 11 weeks of stock built up and this is down to just about five-and-a-half weeks, not much above our usual levels."

But analysts in the US are warning that demand may not increase because most households in the US already have a PC. And the pressure on margins was underlined by Apple's decision to lop $300 off the price of two models of its Cube desktop computers last week.

"We're not worried about PC penetration rates and saturation points," says Mr O'Sullivan. "Ten years ago people said no-one would buy TVs anymore but last Christmas more were sold than ever before."

Innovation is the key to stimulating demand and Apple will introduce several new products at MacWorld in Tokyo next week, he says.

"We will keep innovating with portable products such as the iBook."

Apple is expected to launch a computer with a CD re-writer drive at the show after months of promoting an alternative DVD platform in its computers.

"The market would have preferred a CD re-writer rather than a DVD drive," admits Mr O'Sullivan. "We made a bet that the market would be ready and it wasn't there yet."

But Apple's latest G4 model which offers a DVD and CD rewritable drive, and is manufactured in Cork, is well-positioned to capture a growing market for DVDs, says Mr O'Sullivan.

"Its basically a supercomputer with enhanced processor speed and a DVD thrown in for free," he adds. This model will be commercially available within the next few weeks at a price above £3,000.

"Having total control over the product makes it much easier to design a good quality machine," says Mr O'Sullivan. "We make all the hardware, software, audio and video - all these features work in harmony to one another."

The revolutionary iMac model, which brought style and colour to computing for the first time, has sold almost five million units since launch. It has also had a much longer lifespan than comparable PC models.

Yet such durability can also have its downside, according to Mr O'Sullivan.

"Because our machines last longer than most other types of personal computers people end up comparing older Macintoshs with modern PCs," he says. "I know of some schools still using Macs which are 14 years old."

Analysts and market observers will be watching closely to measure demand for its new line of product. Compared to other PC manufacturers, which have adopted the Windows operating system, Apple is more exposed to a bad consumer reaction.

"One of the greatest challenges we face is that we are going it alone," says Mr O'Sullivan. "We are the only firm to make Macintosh computers since 1984."

Indeed, Microsoft's dominance of computing has several times brought Apple to its knees. With just 3.8 per cent of the European consumer market, a single profit warning can cause panic among Apple investors.

Lower than expected sales of the Cube desktop was a major factor in Apple's decision to issue a profit warning in December and sent its share price tumbling.

"Apple's graph is full of spikes right up into the stratosphere and troughs down into the doldrums," says Mr O'Sullivan. "We live on the edge because we make innovative computers and we believe they are the best in the world."

Living on the edge has a downside for Apple's workers. Slumps in profit and lower consumer demand during the late 1990s translated into redundancies. Two years ago, 450 people lost their jobs in Cork when production of iMac computers was relocated to Wales.

But structural changes within the Apple organisation in Cork over the past six months has lowered the risk of large-scale redundancies, according to Mr O'Sullivan.

"Just 400 people out of a total workforce of almost 1,200 are now employed in manufacturing in Cork," says Mr O'Sullivan. "We have recently transferred our European customer support services and finance functions to Cork and it has become a campus rather than just a manufacturing base."

Apple is predicting a return to profitability this quarter following a loss of some $195 million in the last one. Meeting this target would enable all its Irish employees to breathe a little easier.