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Reuters
PC makers flood market with low-cost computers
Monday December 16, 5:49 pm ET
By Caroline Humer
NEW YORK, Dec 16 (Reuters) - Personal computer makers are naughty, not nice, during the holidays -- a time of cut-throat pricing and all-out battles for market share.
Leading the aggressive pricing this year is No. 2 personal computer maker Hewlett-Packard Co. (NYSE:HPQ - News), which made headlines last week with its PC, flat-panel monitor and printer package for under $700 at No. 1 U.S. retailer Wal-Mart Stores Inc (NYSE:WMT - News).
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"Across the board you'll see us being very aggressive on pricing," said HP spokesman David Alberton, adding that unit sales of the PCs are ahead of internal forecasts.
HP lost the No. 1 personal computer maker slot to Dell Computer Corp. (NasdaqNM:DELL - News) this year, but vowed it was just the first round in a "heavyweight fight."
Now HP is slashing prices and, Dell -- known for launching price wars -- is, in the low-cost PC market at least, not following suit.
"I think at the end of the day, HP is picking up some market share," said Peter Kastner, chief research officer at Boston-based market research firm, the Aberdeen Group.
PC sales are expected to increase less than 2 percent this year, still remaining at levels below 2000, when the industry peaked with the Internet craze.
ENTRY LEVEL VERSUS HIGH END
HP, struggling PC maker Gateway Inc. (NYSE:GTW - News) and eMachines Inc. (OTC BB:EEEE.OB - News) dominate sales of entry level computers that cost less than $600, Kastner said. Dell has been concentrating on selling more expensive machines.
Dell, which sells on the Internet rather than at retail stores like Wal-Mart, Circuit City or Best Buy, may have better margins this quarter because it has not kept up with the low-end pricing, Kastner said.
"HP has the better value but consumers seem to be reacting at the very low end, with eMachines being the most pound of machine per dollar," Kastner said. HP is cutting prices by using less expensive processors, getting new processors into its machines more quickly and trimming costs, he said.
Dell marketing director Mark Oldani said Dell focuses on value, which includes price but also service and support, such as phone and on-site technical help.
"One of the key things that we do is to always make sure we are delivering the best value for customers," Oldani said. He pointed to a $699 Dimension 2350 package, including a flat panel monitor and CD-ROM drive, as a hot item.
The emphasis on low prices comes in what is shaping up to be a third consecutive weak holiday season for PCs as shoppers worried about the economy hold onto just-good-enough computers. Many have turned instead to digital cameras, home networking equipment and multi-function printers.
SLIGHTLY WORSE
Stephen Baker, who tracks computer sales for NPD Techworld, said that pre-holiday sales of desktop computers are slightly worse this year than a year ago.
"Sales are probably a little bit weaker but not much -- within a few percent -- in terms of last year," he said. "It isn't that the absolute prices have fallen. It's that people right now are tending to buy products at the lower end of the spectrum."
Consumers can buy an HP Pavilion with an Intel Corp. (NasdaqNM:INTC - News) Celeron processor running at 1.7 gigahertz for $498 without a monitor. HP is also selling a Compaq Presario 6300 desktop for $399, after a $50 mail-in rebate.
Because customers are focused on cheap PCs, analyst Roger Kay at Massachusetts market research firm IDC said Gateway might not see too much success with a two-for-one offer.
In that promotion, customers who buy a top of the line $3,499 Gateway desktop or a laptop that costs $2,399 get a lower-end PC with an Intel Celeron processor running at 2.0 gigahertz, with no monitor.
"Who's actually got that kind of money and wants to spend it?" Kay asked.
Gateway said the plan is just one of several planned fourth-quarter promotions. "This is one of the more aggressive promotional offers we've made," spokesman Brad Shaw said.
Kay said the danger is that PC prices always drop. "If people know there is cheaper stuff coming, they might just wait," he said. (Additional reporting by Duncan Martell in San Francisco) |
