May 26, 1998
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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Bolded the important part. Maybe you're right, at least until the net pipeline gets bigger, about computer prices. I notice also, there is another article in today's WSJ saying the labor market is going to continue getting tighter. |
