Compaq, Dell play risky game of chicken in computer price war

June 20, 1992|By Fort Worth Star-Telegram

A new wave of price cuts that began this week in the personal computer business has set the stage for an old-fashioned Texas showdown between two of the industry's leading manufacturers.

Compaq Computer Corp. of Houston and Dell Computer Corp. of Austin, Texas, already appear to be on a collision course just days after Compaq introduced a line of low-priced computers designed to compete with Dell.

"It's like a game of chicken," said Jim Poyner, analyst with Rauscher Pierce Refsnes in Dallas. "They're pointing their cars at each other and steaming down the road just to see who goes in the ditch first."

At Dell's annual shareholders meeting Thursday in Austin, company officials seemed preoccupied with Compaq's introduction of its new line of computers earlier in the week, analysts said.

"We will not stand idly by while Compaq cuts its prices," Dell spokesman Roger Rydell said yesterday.

In what could be a foretaste of battles yet to come in the personal computer industry, Dell said it expects to turn up the pressure on Compaq with lower prices this month.

The price cuts, which are expected as part of Dell's introduction of products scheduled for June 29, will slash into the company's already razor-thin profit margins, the company said.

The prospects of lower profitability sent Dell's stock tumbling more than 20 percent, to $15.50 a share Thursday. The stock rebounded slightly yesterday, closing at $15.875.

The seemingly inevitable slide in PC prices leaves other manufacturers shaking their heads.

"Maybe the rest of us should just sit on the sidelines and let them beat each other up," said Ed Juge, a spokesman with Fort Worth-based Tandy Corp. "Prudent businessmen just can't cut prices much lower and expect to make money. Let's hope cooler heads prevail."

For now, Tandy expects to keep the prices of its personal computers at current levels, Mr. Juge said.

Tandy can afford to sidestep the Texas pricing war for at least the next few months without losing much market share, said Richard Shaffer, editor of the New York-based Computer Letter.

Tandy's advantage comes from its chain of Radio Shack consumer electronics stores nationwide, Mr. Shaffer said. The novice computer users who shop for equipment at Radio Shack are less likely to compare prices when shopping, Mr. Shaffer said.

With Tandy on the sidelines, Compaq and Dell are developing a rivalry as heated as the annual football game between Texas A&M and the University of Texas.

In past product introductions, Compaq typically would compare its new products to machines made by International Business Machines Corp. But Compaq officials never referred to IBM Monday. Instead, many of the company's comparisons focused on competing Dell products.

At Dell's annual meeting Thursday, Chairman Michael Dell repeatedly compared his company with the operations of a "Hypothetical Company C" in a thinly veiled reference to Compaq.

He chided the operations and pricing structure of this Hypothetical Company C, saying that its product announcement had not slowed Dell sales and that Dell's prices still remain slightly lower in most cases.

But Mr. Poyner said he wonders why additional price cuts are necessary if Mr. Dell truly believes his company has the upper hand.

"Dell seems fixated on revenue growth at the expense of anything else," Mr. Poyner said.

"They're very nervous that Compaq can get back in the saddle, and they're trying to kick them while they're still down."

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