PC war creates a slew of deals
| • | Details of PC price wars |
Associated Press
SAN JOSE, Calif. — Big rebates. Free printers. Promotions everywhere.
A brutal price war has ensued as the economic slowdown has tightened the screws on the saturated personal computer market. With 2001's first quarter reporting the industry's first-ever U.S. revenue decline, PC makers are fighting to stimulate demand — and to stay alive.
Associated Press
Aggressive pricing by market leader Dell Computer Corp. has forced smaller PC makers to bow out or scale back. And analysts say continued pressure from Dell could trigger more consolidation.
Deep discount signs are becoming commonplace at CompUSA and other computer retailers as personal computer makers struggle for market share and, analysts say, sometimes their very survival. As the industry experiences its first downturns in revenue, consumers can expect the deals to get even better.
"This has been Dell's strategy from the beginning. It's just working better now," said Roger Kay, analyst with International Data Corp. "Inevitably, some will get strangled and leave."
Micron Electronics Inc. had $1 billion in PC sales in fiscal 2000. But the price war proved too tough: On Tuesday, it sold its PC business to Gores Technology Group, a private investment group.
Micron Chairman Joel J. Kocher said it was better to exit rapidly, cut losses and focus on the company's growing Web hosting business.
"The PC business is becoming a major drain on the company's cash reserves," he said.
From October to March, overall prices of mainstream computers sold by major U.S. vendors dropped by 22 percent, according to computer researcher IDEAS International.
Prices by Dell, whose 24 percent share of U.S. sales is nearly double that of second-place Compaq Computer Corp., were sliced by more than 30 percent. Dell's products were still 23 percent cheaper than the industry average.
Dell, based in Round Rock, Texas, has steadily gained market share with its direct-order business model. In the price war, it shows no signs of relenting.
The 1.7-gigahertz Pentium 4 processor debuted in computers just two weeks ago. By last Monday, Dell had already dropped its introductory price by 20 percent — to $1,349 — for Dimension desktops featuring the fastest available PC chip.
Today's aggressive promotions and price cuts — $400 dollar instant rebates, free shipping, free printers and free Internet access — come after steady long-term price drops, in part due to cheaper components.
The average retail price for desktop PCs was $880 in February, compared to $1,700 in 1996, according to NPD Intelect.
Meanwhile, PC processors are at bargain-basement prices. Chipmakers Intel Corp. and Advanced Micro Devices Inc., engaged in their own battle, have repeatedly slashed prices.
Links:
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www.dell.com
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www.compaq.com
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www.hp.com
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www.gateway.com
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www.ibm.com
Intel's new 1.7 gigahertz Pentium 4 chip started at a bulk price of $352 when it debuted last month. By comparison, when Intel introduced its 1.1-GHz Pentium III last July, it sold for a hefty $990.
Prices of memory modules, hard drives and modems are also at all-time lows. Many features, such as video cards and sound cards, are being integrated into computer mother boards, so PC manufacturers need not purchase them separately at higher prices.
As a result, computers are also gaining in performance, said Steve Baker, analyst with NPD Intelect.
For instance, Hewlett-Packard Co.'s Pavilion desktops with 128 megabytes of RAM, a CD-rewritable drive, a 15-inch monitor and 20-gigabyte hard drive start at $699 today, including AOL service. Several months ago, consumers would have paid that price for a model with only half the memory and without the CD-RW drive, Baker said.
"What you're getting for your money now is mind-boggling," said Mark N. Vena, director and chief technology officer of desktop product marketing at Compaq's Home and Office Division.
Compaq's high-end home computer with a 1.1 gigahertz processor, movie-editing software, DVD recorder and five free Electronics Arts games, now sells for $2,000. That's $500 less than what it cost in January, said Vena.
Slashing prices wins customers, but it lowers profit margins. As a result, Compaq, HP, Gateway Inc. and Dell all have announced layoffs.
Some companies have offered big product promotions, but have not matched Dell's steep price cuts.
"We're approaching the PC market on the basis of pursuing profitability versus share growth," Hewlett-Packard chief executive Carly Fiorina told analysts last month. "There simply isn't the back-end recurring revenue stream in this business that warrants sacrificing product profits."
Without middlemen or channel distributors, analysts say Dell is able to save on supply chain expenses and efficiently pass on cost savings to its customers.
In the meantime, consumers can expect more good deals.
"Everyone has accepted that automobiles get more expensive when they gain more features, but the computer industry has set the opposite expectation," Kay said. "They say, 'next year, it'll be faster, better, and cheaper.' It's the devil's bargain."
