Firm Prices Not Always Bad -- VARs' Reactions Mixed As Component Prices Stabilize
Amber Howle
After plummeting during the last few years, the prices of components such as memory, microprocessors and monitors appear to be finally leveling off, according to some resellers and industry analysts.
However, prices of other components, such as graphics cards and hard-disk drives, are continuing to sink.
"Everything is coming down [in price], but many components are getting to where things are leveling off," said Mike Yaeger, president of Phoenix-based white-box reseller Arizona Computers LLC.
Yaeger and other VARs have mixed feelings about stabilized component prices. While stabilization means easier forecasting, the downside is that it becomes harder to remain competitive.
"It's an advantage to me when prices drop," Yaeger said. "I am constantly researching on the Internet how things are going. . . . We do it better than a lot of our competitors, trying to get the lowest possible price. When prices level off, everybody will be able to buy components for the same price."
However, falling prices do not necessarily mean a buyer's market.
"To me, it's never really a buyer's market," said Erik Bianchi, sales representative at Worldcom Computers Inc., Santa Ana, Calif. "Something bigger and better always comes out when prices drop, and it's usually only $20 to $100 for something better and faster. The vendors are so far ahead of us it's not even funny."
Arizona Computers' Yaeger said stable prices make it safer to stock inventory, adding that prices of mice, cases and keyboards always seem constant.
"The benefit of stable prices is to have stock on hand and not get stuck on anything," he said. "Intel [might] drop prices overnight, and if you're stuck with more processors [than you need], you'll get hammered by the competition."
Ameer Afroz, operations director at Technology Link Inc., New York, said there are pros and cons to stabilized prices. "We don't have to change our advertisements every week, and that saves us a little money," he said.
But customers are waiting for further price reductions on memory and microprocessors, Afroz said. "We have to tell them that they won't go down again for a while," he said.
Marc Roy, vice president of operations for Logical Solutions Co. Inc., a Windham, Maine-based VAR, said stable prices mean he only has to quote prices once.
"The problem is that even though prices stabilize, [vendors] change models so quickly," said Roy. "You're not re-quoting and re-quoting [prices]. But with the models changing, you have to go back to the customer and have that approved."
Analysts covering a wide range of components said overcapacity, vendor competition and the advent of the sub-$1,000 PC are causing prices to continue to fall, although the rate of decline on some components is dropping.
The price of DRAM, for example, which experienced a nosedive during the last two years, is stabilizing for various reasons.
Sherry Garber, DRAM analyst at Semico Research Corp., Phoenix, said some memory modules, such as EDO DRAM, will rise in price as vendors phase out the products in favor of new technologies such as Direct Rambus and DDR SDRAM.
Meanwhile, prices on 64-Mbyte DRAM are leveling off as vendors ramp up production of 128-Mbyte modules, Garber said.
Jim Handy, memory analyst at Dataquest, San Jose, Calif., added that demand for obsolete product is stable as supplies dwindle in favor of the PC-100 platform.
"We're anticipating [that memory prices] will be as flat as a pancake in 1999," Handy said. "Prices will stay pretty flat right up until the undersupply we anticipate happening at the beginning of 2000."
Monitor prices, which also plunged during the last few years, should level off for the most part this year, analysts said.
Barry Young, vice president of DisplaySearch, Austin, Texas, said the excess supply of CRT monitors is diminishing, while demand for LCD monitors is rising, resulting in much slower price declines and even a potential shortage.
Young said CRT monitor prices have fallen about 10 percent to 15 percent annually for the last few years. This year's forecast, however, shows no more than a 3 percent or 4 percent decline. LCD prices, which have declined annually by 50 percent, will decline only by about 5 percent this year, said Young.
"This will cause pricing for LCDs to go flat as opposed to the kind of reductions we've seen in the past," he said. "It will still be very easy for VARs to get CRTs. It will be difficult to get large numbers of LCDs."
Rhoda Alexander, senior market analyst for Stanford Resources Inc., San Jose, said the CRT monitor supply is evening out with demand, while LCD monitors, especially 15-inch models, face a greater risk of shortage due to increased demand.
The biggest problem resellers may face this year on the monitor side is they might not be able to get large quantities of specific brands and models, Alexander said. "They may have to go for an alternative brand," she said.
Finding alternative brands for memory and monitors may be fairly easy for VARs since there are so many vendors to choose from. But when it comes to microprocessors, the market is nearly dominated by Intel Corp., Santa Clara, Calif.
Thanks to growing demand for mid- to high-end PCs, microprocessor prices are stabilizing, according to Tony Massimini, chief of technology at Semico Research. "Yes, the sub-$1,000 market is growing, and that brought down prices, but the upper end of the market is growing, too.
. . . Intel and, to some extent, AMD [Advanced Micro Devices Inc.] . . . have made it clear that they don't want to be only in the sub-$1,000 market," he said.
Massimini said VARs can expect the usual Intel price cuts at the beginning of each quarter, along with new, higher-end processors.
George Iwanyc, senior analyst at Dataquest, said slight price declines on microprocessors should continue this year.
"There won't be a big [price] decline in 1999," Iwanyc said, "but as the lower-priced PCs become a bigger part of the market, the overall ASP [average selling price] of microprocessors will continue to come down a little bit."
While memory, microprocessors and monitors enjoy some stabilization, graphics card prices should continue their plunge.
Bob McQuillan, senior research editor at Jon Peddie Associates, Tiburon, Calif., said rampant oversupply makes graphics card vendors very willing to sacrifice margin in order to compete for market share, resulting in a great buyer's market for VARs.
"Resellers have a huge number of choices," McQuillan said. "There's nothing stopping them from going to Taiwan and getting the best price on these designs. It's a buyer's market. . . . The add-in boards have become a commodity."
Meanwhile, the prices of hard-disk drives are so low that rapid declines would seem unlikely this year. Nevertheless, price declines are expected to continue, according to Dennis Waid, president of Peripheral Research Corp., Santa Barbara, Calif.
Waid said that although prices of hard-disk drives dropped from $11.54 per megabyte in 1988 to about 3 cents per megabyte by 1998, "as an industry we're starting to rethink the pricing from 1.5 cents per Mbyte to $15 per Gbyte .and that will continue to come down over time."
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Nuts & Bolts
- Stable prices let VARs improve their forecasting and reduce the risks of keeping stock on hand.
- Memory, microprocessor and monitor prices should level off as supplies tighten and products improve.
- Graphics card and drive prices are still plummeting.
For VARs that excel at finding the best prices, component price stability can cut their competitive edge.
Copyright ® 1999 CMP Media Inc.
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