Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Trade/Invest with Options Jerry a Point & Figure Chartist -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (2223)	5/6/2001 6:51:23 PM
From: 2MAR$	Respond to of 5893

All-out price war has some PC makers fighting for survival SAN JOSE, Calif., May 06, 2001 (The Canadian Press via COMTEX) -- Big rebates. Free printers. Promotions everywhere. Consumers are benefiting from a brutal price war as personal computer makers try to stimulate demand - and stay alive. The economic slowdown has tightened the screws on a saturated market, leading to the industry's first-ever quarterly decline in U.S. revenue during the first three months of 2001. Aggressive pricing by market leader Dell Computer Corp. has forced smaller PC makers to bow out or scale back. Analysts say continued pressure from Dell could trigger more consolidation. "This has been Dell's strategy from the beginning. It's just working better now," says Roger Kay, an analyst with International Data Corp. "Inevitably, some will get strangled and leave." Micron Electronics Inc. had $1 billion US in PC sales last year. But the price war proved too tough and at the start of this month it sold its PC business to Gores Technology Group, a private investment group. Micron chairman Joel Kocher said it was better to exit rapidly, cut losses and focus on a growing Web hosting business. "With growth rates in the PC industry plunging - dropping more than six per cent in the fourth quarter alone - and price wars by major competitors significantly reducing gross margins, the PC business is becoming a major drain on the company's cash reserves," he said. From October to March, the overall prices of mainstream computers sold by major U.S. vendors dropped by 22 per cent, according to computer researcher Ideas International. Dell, whose 24 per cent share of U.S. sales is almost double that of second-place Compaq Computer Corp., sliced its prices by more than 30 per cent and shows no signs of relenting. Just two weeks after the 1.7-gigahertz Pentium 4 processor made its commercial debut, Dell dropped its introductory price by 20 per cent, to $1,349 US, for Dimension desktops featuring the fastest available PC chip. Elsewhere, aggressive promotions and price cuts - $400 instant rebates, free shipping, free printers and free Internet access abound - come after steady long-term price drops, in part due to cheaper components. The average retail price for a desktop PCs was $880 US in February, compared with $1,700 in 1996, according to NPD Intelect. The brains of PCs - processors - are at bargain-basement prices. Chipmakers Intel Corp. and Advanced Micro Devices Inc. - engaging in their own battle - have repeatedly slashed prices. Intel's new 1.7-gigahertz Pentium 4 started at a bulk price of $352 when it debuted last month. When Intel introduced its 1.1-GHz Pentium III last July, it sold for $990. Prices of memory modules, hard drives and modems are also at all-time lows, while computers are also gaining in performance. "What you're getting for your money now is mind-boggling," says Mark Vena, chief technology officer of desktop product marketing at Compaq's Home and Office Division. Slashing prices wins customers, but it also translates to lower profits. PC makers are reeling from declining revenue: Compaq, Hewlett-Packard, Gateway and Dell all have announced layoffs this year. Some companies have offered product promotions but have not matched Dell's price cuts. "We're approaching the PC market on the basis of pursuing profitability versus share growth," Hewlett-Packard chief executive Carly Fiorina told analysts in April. "There simply isn't the back-end recurring revenue stream in this business that warrants sacrificing product profits." With its direct-distribution model - cutting out distributors and other middlemen - Dell is seen as having the upper hand. "Dell has an hour of oxygen and others have a half-hour," says Andy Neff, an analyst at Bear Stearns. "And Dell's agenda is to convince everyone they shouldn't even go in the water." In the meantime, consumers can expect more good deals. "Everyone has accepted that automobiles get more expensive when they gain more features, but the computer industry has set the opposite expectation," says IDC analyst Kay. "They say, 'Next year, it'll be faster, better, and cheaper.' It's the devil's bargain." MAY WONG The online source for news sports entertainment finance and business news in Ca ada Copyright (C) 2001 The Canadian Press (CP), All rights reserved -0- KEYWORD: SAN JOSE, Calif. SUBJECT CODE: technology