Top PC Makers Preparing for Price War

Lower component costs driving price cuts

Lower component costs, slower demand and competitive pressures all factored into a round of desktop PC price cuts announced last week by three top PC makers.

Compaq Computer Corp. slashed prices on one line of corporate desktop PCs by 31%. Hewlett-Packard Co. cut prices on its business desktop PCs by as much as 28%, and Dell Computer Corp. dropped prices on its consumer desktop models by 20%.

This round of price cuts is a "skirmish on the outskirts of a potential price war," said Chris Murphy, an analyst at IDC in Framingham, Mass. "Dell has been very aggressive in pricing for the past several months, and some of the other vendors want to keep up, as far as price perception goes," he said.

Murphy added that lower component costs have allowed manufacturers to pass savings on to customers. "Memory prices are particularly depressed, which translates into lower price points [for PCs]," he said.

Steve Telaroli, North American product business manager for the Compaq DeskPro line, said he agrees that reduced prices on memory have pushed prices lower, as have processor price cuts made by Intel Corp.

"We've had a number of processor price cuts [from Intel], which allow us to continue adding value," Telaroli said.

Compaq slashed prices by 31%, or $577, for its DeskPro EN model with a 1-GHz Pentium III processor, 256MB of RAM and a 20GB hard drive, bringing the price to $1,283. The company dropped the prices of its DeskPro EX with a 1-GHz Pentium III, 128MB of RAM and a 40GB hard drive by about 21.5%, or $286, to $1,102.

Trickle-Down Effect

Achim Kuttler, director of PC client business at HP, said "difficulties in the economy" and lower component costs factored into the company's decision to slash prices by 28%. The company now sells its HP Vectra v1800 model desktop PCs for $1,299, with minitower v1800 models priced at $1,349.

Dell reduced prices on its Pentium 4-powered Dimension PCs with a 1.7-GHz chip by 20% to $1,349 and cut prices on a corporate desktop model with a 1.3-GHz Pentium 4 to $1,199.

Dell spokeswoman Anne Camden said the company intends to keep up the pricing pressure on the competition, within certain limits.

"Dell has said publicly since the beginning of the year that we would offer very aggressive pricing and go after market share," Camden said. "Will we be undersold? I guess a better way to put it is that we will decline to bid when a company asks for pricing that Dell does not believe is in the best interest of its shareholders."

Copyright © 2001 IDG Communications, Inc.

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