IBM announces price cut on disappointing PS/2 line

January 09, 1992|By Leslie Cauley

International Business Machines Corp. announced price reductions yesterday ranging from 10 percent to 16 percent on several models of its PS/2 computers. It was the sixth time in the past year that "Big Blue" has slashed its prices to spur sagging sales.

IBM's fire sale of its PS/2 line is the result of increasing competition from clone-makers, who have continued to clobber the world's largest computer-maker in the market it helped create.

The PS/2 line currently has about 19 percent of the personal computer market, according to Information Strategies Group of Vienna, Va., a division of International Data Group. The balance of the market is dominated by companies such as Compaq Computers that specialize in making clones of IBM machines.

"This [price reduction] is the epitaph on the PS/2 tombstone," said Eric Kestler, director of ISG's microtechnology service. "It's too little too late."

Pummeled by the clone-makers and squeezed by ever-shrinking profit margins, the PS/2 line has never ignited the enthusiasm in the marketplace that IBM had hoped. According to Mr. Kestler, the latest price-cutting measure probably won't help matters much.

"There was so much emphasis at IBM on competing with Apple they didn't pay much attention to an unexpected competitor -- the clone-makers," Mr. Kestler said. "They woke up too late to do anything about it."

Figuring out how to beat the clone-makers has been one of IBM's biggest headaches to date. Coupled with a soft computer market and increasingly price-conscious consumers, times have turned tough for Big Blue.

"IBM's mission now is to try to retain or recapture lost market share," observed Ulrich Weil, a computer consultant in Washington. "And they admit that they've lost a lot of it."

While IBM may be wincing from the competitive squeeze, the good news for consumers is that computer prices will likely continue in their free fall for some time.

Indeed, the same computer system that sells for $2,000 today will likely cost half that much by the end of the decade because of fierce competition and ever-improving technology.

Pushing the price curve is the evolution of microprocessor chips -- the heart and brains of a computer -- that are rapidly becoming cheaper and faster.

Mr. Kestler points out that a Compaq 386-33 microcomputer system has about the same speed as an old IBM 3083 mainframe computer. Each can crunch numbers at a mind-numbing rate of about 6 million instructions per second.

The cost differential? The Compaq computer costs about $6,000, while the old IBM machine carried a price tag of about $6 million.

"Prices will continue to go down as newer chips get introduced," Mr. Kestler said.

The reductions, effective immediately, affect IBM's Personal System/2 models 35 SX, 35 LS and 40 SX. The price of a model 35 SX 040 has been lowered to $1,745 from $1,995.

Most of the price cuts would result in savings of several hundred dollars.

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