Tough rivalry in store for PCs Big electronics firms giving retailers push to acquire shelf space

September 23, 1996|By BLOOMBERG BUSINESS NEWS

PALO ALTO, Calif. -- Personal computer makers face stiff competition from new rivals in the $116 billion-a-year market as the holiday sales season heats up.

Big consumer electronics companies, including Sony Corp. and Toshiba Corp., are using their might with retailers to gain precious shelf space. That's forcing companies such as Compaq Computer Corp. and IBM to be more aggressive on pricing and new features.

"There's definitely more competition," said analyst Bruce Stephen of International Data Corp., which expects U.S. PC sales to rise 14 percent in the third quarter and 21 percent in the fourth.

"There's not enough shelf space to go around."

Though PC sales are likely to be strong in the final four months of the year, analysts said, the wider variety of machines and new entrants mean that profits will be spread over more competitors.

"There will be some definite winners and losers," said Adam Levin of Levin Consulting in Cleveland, who watches the computer retail market.

Established consumer PC makers, including No. 1 home PC maker Packard Bell-NEC, Acer Inc. and Apple Computer Inc., are expected to see a slight drop in market share because of the crowded field.

Hewlett-Packard Co., new to the home market in 1995, is expected to face tougher comparisons with year-ago figures and will have to cut prices to entice buyers. Compaq and IBM also will use lower prices, brand recognition and established market presence to maintain their lead in global market share.

"It's going to be hugely competitive, and there's going to be pressure on margins," said analyst Vadim Zlotnikov of Sanford Bernstein & Co.

That already has helped companies such as Dell Computer Corp., which focuses on corporate sales and doesn't sell in retail stores. Dell's second-quarter profit rose 72 percent, exceeding even the most optimistic forecasts.

Back-to-school buyers have started equipping their homes and dorm rooms with fast, multimedia-capable computers. Tandy Corp. said sales at its Radio Shack and Computer City stores have improved in recent weeks, driven by PC sales.

Holiday buyers will have even more models and vendors to choose from in the coming months.

Sony's machines, which were unveiled in June, will be on shelves today in selected retailers. Toshiba, which entered the market last week, already is selling machines in Best Buy Co. and CompUSA Inc. stores.

IBM will unveil a major new line of consumer machines that is expected to be similar in design to the Sony and Toshiba PCs.

Most of the PCs are priced from $2,000 to $2,500, with some older machines, especially from Apple, marked down to as low as $999. The most popular computers also feature some of the fastest chips from Intel Corp. and software packages with the latest multimedia features.

Most visible among the losers is Apple, which has been struggling with declining market share, financial losses, management turmoil and difficulties in manufacturing.

"Apple is suffering big-time," said Levin, the retail consultant. Apple introduced new machines last month, but most are priced above $2,000, and only the older machines are available in the popular $1,500 price range.

Still, Apple seems to have overcome its problems in making enough computers to meet demand, and the problems earlier this year that hampered notebook sales have been resolved, analysts said.

Even that field is getting more crowded. Hitachi PC Corp. introduced its first notebook for the U.S. market in May, and Compaq broadened its product line in June.

The onslaught of new entrants isn't likely to abate, and many analysts expect more Asian manufacturers, such as Fujitsu Ltd., to jump in next year. Many of those large companies have competitive advantages because they make other parts of the computer already, such as disk drives, memory chips and monitors.

Pub Date: 9/23/96

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