From today's WSJ: anyone have any comments? This seems to affect DELL's territory...
Dell-icious
Business-PC Buyers Find Price Relief
As Declines Mirror Consumer Market
By MARK BOSLET
Dow Jones Newswires
Corporate purchasing managers, watching the prices of consumer personal
computers fall, have been asking, "What about us?"
Now they are getting an answer.
The prices of desktop computers designed for the business market have been falling
at an accelerating pace this year. Business buyers, who had typically been content
to pay more for machines that include extra power and features such as management
software, are becoming as price-sensitive as consumers.
During the first quarter of the year, the average street price of a desktop computer in
the commercial market fell 18%, according to Joseph Loiselle, research manager at
International Data Corp. of Framingham, Mass. That is about three times the pace of
the preceding three quarters.
The result: The average street price of a commercial machine is $1,587, compared
with $2,242 in 1996, he said.
Prices just "went off the cliff," said Rob Enderle, senior analyst at Giga Information
Group in Santa Clara, Calif.
One catalyst for the drop was price cuts by Compaq Computer Corp. After filling up
dealers' shelves in the fourth quarter of 1997, Compaq forced in the following quarter
to make cuts and offer incentives to move quickly aging products. Other PC
suppliers, to stay competitive, had to match Compaq.
Business buyers are also benefiting from the swift decline in prices of PC
components -- products such as monitors, disk drives, memory chips and
processors -- some of those price declines have been passed along.
Imbalances between supply and demand have put more pressure on prices. While
many vendors have continued to rapidly produce computers, in an effort to capture
market share, demand has been less vibrant during the first part of the year.
When corporate buyers do go shopping, they see little reason to purchase the latest
and greatest in technology for their mainstream users -- lower-priced machines are
perfectly adequate. Companies typically expect computers to last three years, and
few see new, power-hungry, got-to-have software on the immediate horizon.
"I think the focus is on price, and price alone now," said Ashok Kumar, an analyst at
Piper Jaffray Inc. Once the price goes down, he added, there is little likelihood of its
going back up: "The price curve has shifted permanently to the left."
Already, the impact of the aggressive pricing is being felt by computer makers.
Reporting a disappointing first quarter last month, Compaq cited the inventory
problem -- which, days later, International Business Machines Corp. said was
plaguing its PC business as well.
On May 15, Hewlett-Packard Co. spelled out its own difficulties, attributing a
second-quarter loss in its personal-computer business to "fire sale" price cuts by
Compaq. Pricing, not unit sales, was the issue, the company said.
Even Dell Computer Corp., generally insulated from inventory woes because of its
direct-sales business, showed a greater-than-expected decline in its average selling
price in the first quarter.
While it is clear analysts foresaw price declines in the business market, the size has
caught many by surprise. "We're seeing an acceleration in that price erosion," said
Kevin Hause, an analyst also at International Data Corp., "mainly due to the channel
inventory problems."
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