For P Cs, It's Beginning To Look A Lot Like Overstock

For computer makers, the Grinch is not about to steal Christmas. But he may make a January appearance.

The fourth quarter is shaping up as a strong one, with retail sales of home computers up 35% over last year, to more than 3 million units. But for personal-computer makers and retailers, strong isn't good enough. They had hoped sales would double during the all-important holiday season--just as they did last year. If retailers ordered to their expectations, and there's evidence some did, look for fire-sale prices on popular entry-level models in January.

Fearing that prospect, stores are trying to clear their shelves by Christmas--to the glee of consumers. Among the goodies: Circuit City has been giving away printers with PC purchases, and Best Buy has sold computers below cost in some markets, hoping to build store traffic.

WORKING THE AISLES. Most chains are letting customers defer payments or finance charges. Computer City offers one American Airlines frequent-flier mile for each dollar spent. The deals are drawing in customers--if not the expected blockbuster crowds. "At this point, we're very happy with the Christmas quarter, and we expect it to continue," says Lawrence N. Mondry, executive vice-president for merchandising at CompUSA Inc. in Dallas.

So far, excess inventory seems limited to a few manufacturers. Apple Computer Inc. cut prices by as much as 25% and Hewlett-Packard Co. by about 10% shortly after Thanksgiving, an indication that computers were sitting in storerooms. Apple also hired 800 people to work the store aisles. But retailers say Apple's sales are still sluggish. "Apple is the biggest disappointment of the Christmas season by far," says a retail executive, who says sales at his stores are down 30% from last year. As for Hewlett-Packard, "it's seeing good sell-through, but retailers placed a huge bet on HP and have built very large inventories," says Vadim Zlotnikov, technology analyst at New York's Sanford C. Bernstein & Co.

Even Packard Bell Electronics Inc. seems to be doing well. For weeks, rumors flew that Packard Bell was flooded with low-end models built around Intel Corp.'s Pentium 75 chip. But CEO Beny Alagem says: "We have no excess of Pentium 75s"--which start at about $1,500. Confirms one retailer: "Not only doesn't Packard Bell have an inventory problem, it is short of product." Still, analysts expect its sales to rise by only 20% to 30% this quarter--slower than the market is growing.

MOMENTUM. That's because Packard Bell is facing intense competition. Last Christmas, as the home-PC market swung toward Pentium models, Compaq Computer Corp. didn't offer any, and IBM had underestimated demand. Now, both have plenty of home-oriented Pentium models and are doing well. Sean Burke, Compaq home-PC marketing director, says sales have been "very solid overall for all of our products." Other powerful players aggressively entered the consumer market this year, including Hewlett-Packard, Digital Equipment, and Japan's NEC.

Which companies are hurting most? Big newcomers are taking market share away from no-name and store-brand makers as the industry consolidates into the top five players. Such brands as AST, Pionex, and Compudyne--the house brand of CompUSA--have lost a big chunk of the pie. AT&T and Leading Edge PCs have nearly disappeared from store shelves.

If retailers keep up the momentum for a few more weeks, they will probably avert a price crash in January. Despite talk of consumer preference for the biggest and fastest, Pentium 75s are still the best-sellers. "Look who buys at Christmas--entry-level buyers," says Alan C. Bush, president of Tandy Corp.'s Computer City division. "They want P-75s, so--regardless of inventory problems--we'll sell more of them than any other computer this Christmas." Better happen that way. Otherwise, January could bring a post-holiday hangover for computer retailers.

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