Analysts See PC Price War on Horizon
By Daniel Sorid
NEW YORK (Reuters) - Personal computer makers are slashing prices in an effort to salvage a weak holiday shopping season, setting the stage for a possible price war over the next few months.
While exact data is not yet available, analysts said anecdotal evidence suggests computer sales have been poor over the past few weeks, as consumers tightened the grasp on their wallets in fear of an economic slowdown.
A price war could erupt, they said, as PC makers race to sell computers stuck in the pipeline before they become stale.
"I would have to believe there's going to be a brutal war" in the first quarter of 2001, said Peter Christy, a research director for Internet technology at Jupiter Media Metrix. "If you have volumes in the pipe you need to get rid of them before they rot underneath you."
That may not be so easy, however, as many households are content with the PCs they bought in the late 1990s, during the boom of the World Wide Web.
"The Internet was huge. People went out and bought PCs in droves," said David Bailey, a computer hardware analyst with Gerard Klauer Mattison & Co. Now, he noted, "the existing PC they have is good enough."
Analysts said consumers are waiting for a blockbuster service or application, such as high-quality video and audio over the Web, to take them to a higher level of computing before they upgrade once again.
"In the past it had usually come around a new version of Windows or Office," Bailey said.
Weak sales of Windows ME, Microsoft Corp.'s (MSFT.O) new operating system geared to consumers, have not helped the matter, Bailey said.
For shoppers in the market for a new computer, however, excess supply translates into good prices.
Compaq Computer Corp. (CPQ.N), the No. 1 PC maker, lists 13 separate rebates and discounts on its Web site (http://www.compaq.com) that extend into January and even February, offering extra notebook batteries and free printers on some of its products.
Last week, Dell Computer Corp. (DELL.O) slashed prices on many of its notebooks. Its Latitude CS Ultramobile, which comes with a high-end Pentium III processor and 128 megabytes of memory, is selling for $1,599, a 20 percent reduction.
"It appears with the increased rebate activity that sales have not picked up considerably during the holiday season," Bailey said.
Apple Computer Inc. (AAPL.O) could be one of the hardest hit. The maker of its iMac and the Power Mac G4 Cube said earlier this month it believed sales would fall almost 40 percent.
It also said it had as much as 11 weeks inventory in the pipeline during October.
Bailey said Apple had overpriced its Cube computer, and that extensive marketing of video editing software that came free with certain desktops had not panned out as expected.
Dell may be better off, he said, having signaled a push into higher-end computers that still shows signs of growth.
"Dell has very aggressively moved to increase their business that they derive from servers and storage. Long term, they're probably relatively well positioned," Bailey said.
But even corporate spending on computers seems to be weakening, however, according to recent surveys by two top brokerages.
From the consumer perspective, however, the oversupply is nothing but good news.
"I went out and bought my five-year-old son the cheapest PC," Christy said, "and I don't know many people doing anything that needs more power than that, except for the pursuit of the high-end video games."
16:20 12-26-00 |
