The overall outlook for retail sales this Christmas may be cautiously optimistic, but in personal computers, it's more like ecstatic. A combination of low prices, new products, pent-up demand, and post-election consumer confidence should boost fourth-quarter shipments to 4.1 million units, up 14% from 1991, estimates InfoCorp (chart). And everybody is winning: Dealers, retailers, and manufacturers are all expecting their best December in years.
In other words, the pain and suffering of this year's gut-wrenching price war may pay off. Lower prices have set off a buying boom not only among traditional corporate customers but also among consumers. The bargains, along with dozens of models geared to mass merchandisers, are making the home market the fastest-growing segment. Analyst Steven L. Eskenazi of Alex. Brown & Sons Inc. predicts a 25% increase in U.S. PCs sold to home and small-office buyers this year, to around 2 million units, compared with an overall industry increase of only 10%.
"Everybody's only worry at this point is that they can't get enough machines to meet demand," says Seymour Merrin, head of consultants Merrin Information Services Inc. Indeed, the biggest complaint in the industry these days is shortages--of parts, of PCs, of everything but customers. "This Christmas is going to be excellent," says Safi Qureshey, president of AST Research Inc. in Irvine, Calif. "We have record backlogs. We can't meet demand." Ditto for Tandy Corp.'s Radio Shack stores, where PCs are selling better than they have in several years. "The only bad news is we're constrained by a shortage of parts," says Edward Juge, director of marketing relations.
It's true that the fourth quarter is always the strongest for PC sales, thanks to corporate buyers using up their equipment budgets. But corporate sales are getting an additional boost this yearend because such top brands as IBM, Compaq, and Apple have started pushing lower-priced machines.
Business customers are also in the midst of a major upgrade to PCs based on Intel Corp.'s 80486 chip, which does a better job of handling the massive programs written for Microsoft Windows. An October survey of corporate purchasing plans by market researcher Computer Intelligence found that 25% plan to buy new computers within the next year, compared with 21% in October, 1991. "That's the highest level we've seen in the last couple of years," says Computer Intelligence analyst Daniel Ness. And 25% of prospective buyers said they would purchase 486-based machines, up from just 2% a year ago.
FIRST-TIMERS. Of course, the plunging prices help. Thanks to the price war, customers are going into reverse sticker shock: They can't believe how cheap PCs are. A year ago, the median price of a top-of-the-line 486DX was $4,362, according to Computer Intelligence. This October, it was $1,888. And 386-based PCs can now be found for as little as $500.
At these prices, a PC becomes viable for a broader market, says CompUSA President Nathan P. Morton. "We are seeing a lot more first-time customers," he says. Yet while low prices might be bringing them into the stores, they aren't necessarily taking home the cheapest models. Morton says the average selling price this year at the 36 CompUSA superstores is $2,150, up slightly from a year ago. CompUSA's most popular model this year is a PC that uses Intel's 25-megahertz 80486 chip.
Compaq Computer Corp., which started selling in mass-market chains such as Circuit City and CompUSA only this fall, says it's pleasantly surprised to find that ordinary consumers are willing to spend a little extra for a Compaq over a no-brand clone. Gian Carlo Bisone, vice-president for North American marketing at the Houston company, says he is hearing from distributors who say retail customers who had planned to spend $1,500 on a PC seem to be more than willing to go up to $1,800 or $2,000 for extra features or brand-name reputation. "I just visited some Computer City stores, and I was very pleased to see all sorts of customers carrying ProLineas out in their shopping carts," he said. In other words, Santa should be stuffing a lot of shiny new 486 PCs down chimneys this month--as well as through office doors.