Market's bad times likely to slash costs


April 29, 1991|By Rory J. O'Connor | Rory J. O'Connor,Knight-Ridder News Service

SAN JOSE, Calif. -- The price of computing is coming down, and within a few months consumers could find some very attractive buys at their local computer store.

Of course, computer prices are always dropping. A computer that cost $5,000 in 1985 can be bought for something like $800 now, thanks to advances in chips, disk drives and the like that make the computer a virtual antique.

Or, put another way, for the same $5,000 today, you can buy a computer that is far faster, better and with more features than that 1985 model.

But some times are better than others for finding bargains.

Personal computer sales have been sluggish for quite a while. Projections for 1991 by the research firm Dataquest show that computer makers will sell only an additional $4.5 billion worth of personal computers in 1991 compared with 1990 -- an increase of just 10 percent. That's hardly the kind of numbers to which the computer industry has grown accustomed in the past decade.

Blame the sluggish growth partly on the lackluster national economy. But also consider that people already own a lot of computers that are working just fine.

Like the automobile industry, the computer industry makes a lot of its money on customers' replacing old models with new ones. But computers don't wear out the way cars do, and technology that's 2 or 3 years old still does the job well enough for many owners, especially the business customers who represent the majority of the computer market.

So the computer industry has been looking to attract new customers, people who don't yet own a computer. You can see evidence of this in the push by companies like IBM and Tandy to create computers targeted at the home or the home office buyer. That's one place where the number of potential computer buyers far outnumbers current owners.

These buyers fall into one of two categories: those who don't have any good reason to own a computer (and know it), and those who'd like to own one but can't afford the price.

Computer makers haven't yet hit upon the magic bullet that will turn the first group into customers, although they've tried everything from prepackaging the entire system to writing "home management" software and special user interfaces. It's clear what to do about the second.

Apple took aim at those customers last fall with a low-price strategy that is working well. After years of complaints from potential buyers that Apple's Macintosh line was overpriced, the company dumped its high profit-margin strategy in favor of a line of lower-cost computers and is rapidly gaining market share.

The success of Apple's approach isn't lost on its big-name competitors.

Compaq, which also has maintained premium pricing, slashed some of its computer prices last week. The Houston company also may be reacting to a series of advertisements by another competitor, Dell, which has based its campaign around the huge price difference between the two companies for comparable equipment. (Compaq is suing Dell over the ads.)

IBM, which just reported one of its worst financial quarters ever, is also under strong pressure to drop its prices.

IBM and Compaq generally keep prices up in the rest of the industry. When they come down, other companies with less-expensive wares respond by cutting their prices, too. In the next few months, we might actually see a genuine computer price war, with buyers the ultimate winners.

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