More on the direction of "work station" pricing from IBD.
Headline: Computers & Technology Workstation Prices Dropping,
But Firms Don't Declare War
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Workstation makers seem to be playing a game of follow the leader
- a game that could benefit users of the high-powered computers.
Mountain View, Calif.-based Sun Microsystems Inc. kicked off a new
product line in midJanuary, dropping prices by as much as half. Two
days after Sun's announcement, Palo Alto, Calif.-based Hewlett-
Packard Co., No. 2 in the market, reduced its prices by 17% on its
high-end NT workstations.
Is a workstation war brewing?
No computer company ever admits to dropping prices in reaction to
competition, says Peter ffoulkes, a workstation analyst with San
Jose, Calif.-based Dataquest Inc.
"(But) every company that wants to be in the game has to respond,"
ffoulkes said.
Some manufacturers disagree.
Compaq Computer Corp. of Houston likely will cut prices within the
next three weeks, says David Parsons, the company's director of
workstation marketing. He insists, though, that any price moves
won't be because of Sun and HP cuts.
"We're not going to get put into a price war," Parsons said.
"That's not our plan. But we'll be price competitive where we think
we need to be."
Others aren't so sure. Mark Edwards, workstation marketing
manager for Maynard, Mass.-based Digital Equipment Corp., disagrees
with Parsons, even though the two soon will be colleagues. Compaq
earlier this week said it would buy Digital.
"As HP and Compaq adjust their prices, we have to also," Edwards
said. "It's not unusual for the market to adjust after Sun makes a
move."
Workstation price cuts are coming in bunches as Microsoft Corp.'s
Windows NT eats away at market share long dominated by competing
Unix-based systems.
One factor is that Sun, a Unix maker, is dropping prices to keep
up with NT. NT makers, in turn, are dropping their prices to keep
below those of Sun.
But there's more at work here, analysts say. Workstation
component costs have dropped recently. Low-end workstations face
competition from cheaper high-end PCs that can do some of the same
jobs. And new entries into the workstation business are driving
prices down.
In other words, it's a good time to go shopping.
Boris Elisman, head of HP's highperformance computing operation,
says HP has lower prices because it's paying less for key parts -
namely memory and hard drives. That's true of all manufacturers,
Elisman adds.
Another long-term trend that is putting price pressure on
manufacturers is demand for better, faster and cheaper PCs. High-end
computers now are equipped with 333 megahertz and faster Intel
processors - the same ones used in low-end workstations.
Some of the least expensive workstations are priced around $2,600,
while similar high-end PCs can be found for less than $2,000. Market
leaders are trying to close the gap, analysts say.
Tom Copeland, analyst for International Data Corp. in Framingham,
Mass., expects low-end workstation margins to get closer to PC
margins over the next 12 months. Workstation profit margins are
roughly 35%, which is 10% to 12% more than a PC's, he says.
While falling prices and margins could be seen as a threat to
profits, they could drive sales volume, Copeland says.
"Just a few years ago, a lot of people didn't have workstations.
It was just the designers," Copeland said. "Now people are expanding
their use of workstations to jobs (where) companies just couldn't
spend $15,000 per system (before). Now they can do it for $4,000 or
$5,000, and they're saying 'OK.' "
Round Rock, Texas-based Dell Computer Corp. also is giving the
market leaders a headache. Dell entered the workstation business six
months ago, and has undercut the prices of nearly everyone.
Dell uses the same low-overhead business model it uses in PCs to
sell workstations, says Jay Moore, a workstation analyst with Boston-
based Aberdeen Group Inc.
"On the low end, Dell came in with great prices, undercutting the
closest competitor by more than 10%," Moore said.
But workstation sales aren't driven solely by price, Moore says.
Buyers scrutinize their purchases, taking into account a machine's
architecture and packaged services and support. Many customers also
prefer to buy from manufacturers that offer a wide range of products.
Still, Dell's pricing has won it significant unit market share in
just a matter of months. IDC figures released Wednesday place Dell
fifth.
Dell's rivals question whether the upstart can remain such a
feisty competitor.
"If a (manufacturer) only is going to play in the value end of the
world, the margins will go south quickly," said Compaq's Parsons. "A
(manufacturer) with a broad product line that can compete at many
performance levels will enjoy better gross margins." |
