Price.War @Pc.LandRobert D. Hof
Will personal-computer companies ever stop cutting prices? You wouldn't want to bet the mouse on it--this year, anyway.
On Mar. 8, IBM and Compaq Computer Corp. slashed prices on their desktop machines by up to 23%. The moves followed big price cuts on Mar. 3 by Hewlett-Packard Co. that, in turn, came on the heels of February reductions on mobile PCs from Apple, Compaq, IBM, and Toshiba. And then there were the price wars of 1994. For PC makers, pricing has become a constant downward spiral: "Leadership in this industry implies price competition," says Jacques A. Clay, general manager of HP's PC division.
The latest round of price cuts is a warm-up for what looks like another treacherous year for PC makers. Gone is last year's sizzling 27% unit sales growth. In 1995, companies expect gains of 19%. Now, having stolen a big share from small players, the industry's biggies have just one place to turn for new business: each other's customers. "The top tier are competing for market share against themselves," says Vadim Zlotnikov of Sanford C. Bernstein & Co.
NEW MACHINES. The PC makers can afford a price war. The cuts are being driven by Intel Corp.'s Feb. 1 price reductions of up to 39% on Pentium chips. And the lower prices are paving the way for new machines, which most big PC makers are introducing this month.
The competition won't let up soon. On the industry's agenda for later this year: even more price cuts and new products. Some PC makers hope to stay in the game by capitalizing on fast-growing markets, such as notebook PCs and consumer multimedia machines. Others, such as Compaq, plan to compete by adding novel features to mainstream business machines.
Not every company can keep up with the industry's furious pace. By mid-1996, figures Clay, just five outfits will command half the PC market--down from 10 today. "The PC industry is going to become like the car industry," he predicts. Tough as it is to cut prices, the price of not cutting them could prove even steeper.