Competition, easier access to technology help push costs down to all-time lows

THE GREATEST NEW PC FEATURE: A LOW PRICE

June 22, 1992|By Daniel De Vise | Daniel De Vise,Knight-Ridder News Service

Personal computers are getting cheap.

How cheap? Consider these examples:

* IBM's long-awaited lap-top computer debuted a year ago at $5,900. Today, it sells for $1,600.

* Apple's Macintosh, long the priciest of personal computers, now may be had for less than $1,000.

* Personal computer prices overall have plunged 50 percent or more in the past year, analysts say.

This might be the best time in personal computer history to buy one. Prices are falling faster than anyone can remember, sometimes as rapidly as $100 a day. The two leading personal computer makers, Apple and IBM, are pouring money into the cheap, bare-bones machines they once left to cut-rate "clone" makers. And today's personal computers are powerful enough that they may be the last ones you'll ever need.

"You can get something as powerful as the computers NASA had to put a man on the moon for less than $1,000," said Neil Saffer, president of Gator Technologies, a computer store in Boca Raton, Fla. "For $5,000, you can get the whole world."

Not long ago, the letters "IBM" on the front of a computer box, or the image of a certain shiny red fruit on its placard, was enough to guarantee a sale. Price was no object. Only a smidgen of computer buyers dared venture outside the established mainstream, and those who did risked shoddy quality and shaky service from fly-by-night companies.

But the industry's Big Two no longer enjoy such luxury, and they're the first to admit it. Smaller, more nimble competitors have steadily undercut IBM and Apple's lowest prices by hundreds or even thousands of dollars, luring away an ever-growing share of customers.

"The IBM name is certainly more than just letters on a box," said Pete Reilly, a marketing director in IBM's PC division. "But clearly you cannot expect that name to overcome price differences, for equal functions, that get up in the 50 percent range."

Tension among IBM, Apple and its less-expensive competitors has existed for years. But the conflict has grown into full-blown war in the last year or so. The two giants have launched massive assaults into the low-end PC market, and prices have started to tumble.

Several factors converged to send PC prices into a free fall. For a start, much of the technology that goes into the machines is a decade old and readily available to all. The monopolies, trade secrets and proprietary holds that once kept prices high for some personal computer gadgetry are gone. This situation won't change unless there's a major technological breakthrough, experts say.

In addition, a growing number of personal computer makers are fighting for a dwindling share of sales, putting the whole lot in an economic clamphold that's sure to keep prices down. U.S. personal computer sales rose only 3.3 percent last year after several years of double-digit growth, according to Dataquest, Inc., a Silicon Valley market research firm.

And then there's the recession, which hit the computer industry head-on. The onslaught left IBM with its first unprofitable year in history and put several smaller firms out of business.

What's left is a cluster of cutthroat, profit-starved companies, each one offering just about the same technology and the same products.

"The difference among PCs is about as large as the difference among hamburgers," said Richard A. Shaffer, a computer industry analyst at Technologic Partners in New York. "They might as well be sold by the pound."

Analysts say the personal computer market may be headed for the same impasse that struck the VCR industry a few years back. As the technological differences between machines evened out, consumers began shopping merely for price. VCR makers that wanted to sell more machines slashed their prices, touching off a price war that brought prices down to the $200- $300 level for good.

This analogy holds for the personal computer market. Computer hardware has reached a plateau, with the most powerful microprocessor "brains" offering users as much as 150 times the power of the original, decade-old IBM PC. Meanwhile, high-volume, deep-discount retailers such as Office Depot have entered the personal computer marketplace, sensing that lower prices were on the horizon. Office Depot recently announced it would begin selling Apple Macintosh computers, historically the industry's priciest.

IBM and Apple sensed the upcoming price-wars as well, and both companies began conceiving no-frills personal computer for price-conscious buyers.

"[Apple] forecast a market which was going to become very, very price-sensitive," said Apple spokeswoman Pat Kinley. "We weren't just talking to technical geniuses anymore, we were talking to real people who had real needs. It was a definite strategy, and the idea was getting market share."

In late 1990, Apple introduced two machines applauded as its first-ever budget-minded personal computer, the Macintosh Classic and LC. Both listed for under $2,000, and their real-life "street prices" have gone as low as $800.

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