As battle lines form, another PC price war looms

PERSONAL COMPUTERS

July 19, 1993|By PETER H. LEWIS

Just as in "Jurassic Park," the big dinosaurs -- Compaq, IBM, Digital and Hewlett-Packard among them -- are coming back to life and, boy, are they hungry. With the ferocity of a tyrannosaur, these giants of the computer industry are stalking and chewing up any personal computer makers not big enough, smart enough or nimble enough to survive.

The weaker PC makers have no choice but to scurry for cover. CompuAdd Corp., following the lead of Everex Systems Inc., recently filed for Chapter 11 bankruptcy protection and laid off more than half its workers. Scores of smaller companies are going to unmarked graves. Even some fairly large U.S. companies are disappearing -- goodbye Gecco, Fast Micro, Standard.

"Of the X number of advertisers we had in December, in June there was a substantial percentage less," said John Blackford, editor of Computer Shopper, a magazine that carries advertisements for companies that sell computers and components directly to users. "The first half of 1993 definitely saw a downtrend. The companies that are going away are the ones who didn't understand how to run an efficient business."

Adapt or die is the message, and the key question is how long companies have to adapt.

"People want it to be over in two quarters, but we're looking at another 24 months of shakeout at all levels," said John McCarthy, director of technology research at Forrester Research Inc., a research and consulting company in Cambridge, Mass. "The summer doldrums seem to exact their toll, particularly in Europe and Japan. There's nowhere for these guys to hide."

It used to be that a company could buffer its sagging domestic sales by looking overseas, but the economic slump is worse in many quarters abroad. Business in Germany, which traditionally accounts for up to 25 percent of European computer purchases, has declined sharply; Japan's economy is slowing.

Some companies are getting out; others are seeking protectors. Tandy Corp., for example, unloaded its PC business to AST Research Inc., which is expected to report a decline in earnings for its fourth quarter, which ended July 3.

Groupe Bull, a money-losing French company that owns the unprofitable Zenith Data Systems, acquired a 19.9 percent stake in Packard Bell, which says it is profitable. Last year, when it wasn't profitable, Packard Bell had to cancel an initial public offering.

Getting nervous

Even some of the bigger predators are getting nervous. Although the overall PC market continues to expand, "the hockey stick growth chart for many companies appears to have reached the knob on the handle," said Portia Isaacson, president of Dream IT, a market research and consulting company in Colorado Springs.

"The coming battle between the first-tier players, most of whom have deep pockets, could result in another price war and a tougher battle for market share points," Neff suggested.

The homogeneity of personal computer technology, based on the Intel Corp.'s microprocessors and Microsoft's software, means that the battleground is almost certainly prices.

Price wars are happy news for computer buyers, of course, and demand for computers has stayed strong. Will Zachman, president of Canopus Research of Duxbury, Mass., said he suspects that the demand has been siphoned from 1994 into 1993 as a result of the low prices, and that demand will dry up soon.

Slimmer profits

But low prices mean slimmer profits, so the big companies need to sell ever greater numbers of computers to sustain their dinosaur-sized metabolisms.

To do so they need to create new markets, which they can do in two ways: cut prices further or come up with new products. They also have to shed some excess weight.

Apple Computer Inc. recently got a new chief executive, cut its computer prices for the third time in three months and handed pink slips to 16 percent of its work force. Last week, the company announced a much bigger quarterly loss than had been expected and a big restructuring, even as it began laying off employees at its headquarters in Cupertino, Calif.

Apple is looking for new markets in consumer devices, led by the introduction of its Newton personal information manager later this month.

International Business Machines, which got a new chief executive earlier this year, is lopping off excess workers in five-figure chunks and reshuffling its operations. It is strengthening its line of portable computers, employing new technologies in its desktop line and preparing to enter new markets with a line of low-cost PCs called Ambras.

Compaq Computer Corp. has a head start on the pack. It started the current price war a year ago when it got a new chief executive and dumped 2,000 jobs.

Even so, Compaq recently reorganized its PC operations, announced an intimate working relationship with Microsoft, IBM's former spouse, and vowed to cut prices again. It, too, is planning to introduce a new line of low-cost computers for the consumer market and a line of small, pen-based computers.

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