Low-Cost PCs Account for 40%
Of Holiday Season Computer Sales
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
The low-priced personal computer craze, which has turned the U.S.
consumer-PC market on its ear, grew even stronger during the holidays.
Though retailers and analysts are still collecting data, early reports show new
PCs priced at less than $1,000 accounted for more than 40% of consumer-PC
sales in December, the busiest sales period of the year. Analyst David Goldstein
of Channel Marketing Corp. in Dallas estimates their share reached nearly 60%
in some stores.
The previous high point for PCs costing less than $1,000 was in August, a
period popular for back-to-school purchases, when they accounted for 38.7%
of units sold in electronics, office and computer stores, according to Computer
Intelligence, a La Jolla, Calif.-based market research firm. Its preliminary
estimate is that low-priced units accounted for 42% to 47% of PC sales in such
stores this month, said analyst Aaron Goldberg.
Mixed Blessing
The cheaper computers have been a real bargain for consumers, but they've
been a mixed blessing for manufacturers and retailers. While overall unit U.S.
retail sales of PCs will grow by about 25% this year, overall revenue growth
for many stores has been marginal and, in some cases, is believed to have
declined because the computers sell for so much less than previous popular
models. In addition, the profit margins on the machines are about 2% to 3%,
compared with 8% to 10% for higher-end machines.
Several retailers confirmed stronger sales of sub-$1,000 units than in earlier
months of this year, though none would provide specific data ahead of their
monthly sales announcements scheduled for this week and next. They also said
many shoppers delayed purchases until just last week.
"Christmas buying came in a bigger chunk later than it has in prior years," said
Nathan Morton, chief executive officer of Computer City, the
computer-superstore unit of Tandy Corp. "There was a real hunger for this
price point in particular."
CompUSA Inc., the largest computer-superstore operator, will provide the first
concrete look with the announcement Wednesday of its fiscal second-quarter
sales, which includes most of December. Its shares rose 13%, or $3.125, to
$29.625 in composite New York Stock Exchange trading Tuesday, in
anticipation of a strong report, analysts said. Tandy shares rose $1.25 to
37.625, while shares of Best Buy Co., the nation's biggest-selling
electronics-superstore chain, rose $2.1875, or 6.6%, to $35.1875.
Who's Buying?
While the lower-priced systems are thought to have been particularly appealing
to people who didn't previously own PCs, industry executives are trying to
determine how many such systems went to existing PC owners, cannibalizing
sales of higher-margin, higher-dollar units.
Some worry the popularity of the low-priced systems signals a leveling off in
consumer interest in computers.
"Since they're giving you a very high quality computer in those prices, it's
making it harder to step the customer up into higher processor speeds," said
Brad Anderson, president of Best Buy.
Jim Keohane, a software consultant and developer in Levittown, N.Y., recently
purchased a Compaq $799 system, beefed up its memory and began using
several sophisticated programming tools on it. "They're selling at the market of
families with kids playing games. It's certainly capable of that, but it has all the
processing power I need and I've really been pounding it," Mr. Keohane said.
In an unusual move that signals the pressure on the industry, Intel Corp., the
leading maker of microprocessors that run PCs, on Monday lowered the prices
of the entry-level version of its advanced Pentium II chip family. The chip
maker usually cuts prices in the middle of a quarter, not the end.
A spokesman said Intel is trying to help PC makers move Pentium II-based
models through the early months of 1998, a traditionally slower sales time in
the retail market. He also noted the company anticipates having a modified
Pentium II chip priced to be used in $1,000 or less PCs by fall.
Several large computer makers, notably Compaq Computer Corp. and
International Business Machines Corp., have turned to Intel rivals Cyrix Corp.,
a unit of National Semiconductor Corp., and Advanced Micro Devices Inc. for
the chips to run their low-priced systems.
Anticipating Intel's price cut, Best Buy on Sunday began advertising 10%
discounts on all Pentium II systems. On Monday, Gateway 2000 Inc. changed
its $1,499 PC, monitor and printer package to a system based on Intel's 233
Mhz Pentium MMX chip, up from a 166 Mhz MMX chip.
Gateway noted that 64% of the buyers for its 166 Mhz-chip system in the last
six months were new PC users. Some analysts estimate that three of four buyers
in the overall PC market are repeat buyers. |
