Newspaper article The Christian Science Monitor

PC Price Cuts: Consolidation Sign?

Newspaper article The Christian Science Monitor

PC Price Cuts: Consolidation Sign?

Article excerpt

COMPUTERMAKERS are cutting prices again.

This week, International Business Machines Corporation reduced prices by 6 to 24 percent on some of its best-selling models. The move follows similar actions by Compaq Computer Corporation and others.

In one sense, these cuts are normal. In another sense, they mark another step in what many analysts believe is a slow, inevitable consolidation in the industry.

Computer manufacturers typically cut prices 10 to 15 percent a year because of technological improvements. "The technology leapfrogs itself," says Rob Howe, vice president of vendor relationships for MicroAge Inc., a computer store chain. "Faster and better and cheaper. The 486 chip last year was a wonderful new technology. Today, we're hearing rumors of the 586 a faster chip.

So far, IBM's price cuts of 6 to 24 percent are in line with industry practice, analysts say. "If you look at the heart of the product line, most of the cuts are 5 to 15 percent," says Rick Martin, a computer analyst with Prudential Securities Inc.

Small signs are popping up, however, that 1991 will not be a typical year. For one thing, the industry is in the midst of its first recession. (Downturns in 1981 and '82 hardly affected the industry because it was so new at the time.) The slump in demand is pressuring computermakers to lower their prices aggressively.

Last month, Compaq announced cuts of up to 34 percent for its computers. In May, Toshiba America cut prices on its notebook computers. The moves apparently led IBM to cut prices earlier than expected. Analysts had anticipated the Armonk, N.Y., manufacturer would cut prices next month, when it introduced new personal computers.

Thus prices may fall more sharply this year - 20 to 25 percent, according to Brian Clarke, a PC pricing analyst for International Data Corporation, a market research company. That's good news for consumers. A year and a half ago, they would have paid an average $2,949 for a Compaq Deskpro 386SX loaded with one megabyte of RAM (random access memory) and a 40 megabyte hard disk. The price jumped up a bit in 1990 because the company added a second megabyte of RAM. …

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