Leading makers in price war Big Four companies battle to maintain market share

March 30, 1998|By COX NEWS SERVICE

A "downward spiral" in personal computer prices that began early in the year might signal a new pattern of price cuts involving the top U.S. computer makers, analysts say.

Leading PC manufacturers, however, say the price cuts are business as usual, prompted by predictable softening of prices they pay for components, and by efforts to cut inventory of older machines sitting in warehouses.

While the current price cutting is driven by those factors, it differs from the past, analysts say, because of more frequent cuts by Compaq and, recently, aggressive price slashing by IBM Corp. on new models. That's unusual because cuts traditionally involve older models whose allure has faded in comparison to faster, more powerful computers.

If the analysts are right, it will mean even lower prices for customers. It will also slice into the already slim profit margins for PC makers, which might increase the dominance of the Big Four: Compaq, IBM, Hewlett-Packard Co. and Dell Computer Corp.

"There is a protracted price war going on," said Joe Loiselle of International Data Corp. "Long-term survival is related to market share, so the volume leaders who also have far-reaching product lines have a better chance to weather the storm."

The strategies of the warring PC makers can be seen at IBM and Compaq.

IBM's recent price cuts of as much as 20 percent on its 300GL with a 233-megahertz, Pentium II processor are driven by an effort to maintain market market share, said James Staten of Dataquest Inc.

Compaq, on the other hand, is scrambling to clear out inventory, a move that will wipe out its first-quarter profit.

With 45 percent of U.S. households owning a personal computer and no major new applications prompting users to upgrade to newer models, the industry is anticipating only a 15 percent increase in sales this year. While many industries would love to grow at that pace, it's a sharp drop from the 25 percent rate of only three years ago.

"The vast majority of people don't need the latest-and-greatest product," Loiselle said.

That might be behind IBM's decision to slash prices on its newer models. "Unlike companies cutting prices only on older systems, IBM is also offering significant savings on our hottest-selling Pentium II-based models," Rod Adkins, general manager of IBM Desktop Systems, said.

Faced with hundreds of thousands of unsold computers that are declining in value compared to newer machines containing lower-cost components, Compaq took the unusual step of tossing in a free 15-inch monitor on some Deskpro models. "We're pretty happy with the way things are going," said Ed Ellett, Compaq's director of desktop marketing.

Pub Date: 3/30/98

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