Dell computer prices

NEW YORK -- Barely a month into the new year, four major manufacturers of personal computers ushered in a new wave of price slashing last week, offering cuts as steep as 37 percent on a broad range of desktop and notebook lines.

The brutal battle for market share that characterized 1991 had been expected to continue into 1992 (EN, Jan. 6), but several analysts said the price cuts came earlier and were steeper than they had anticipated.

Early in the week, Apple Computer followed up a recently concluded rebate program with a much-rumored price reduction, cutting suggested retail prices on low-end Macintosh models by as much as 37 percent.

While some analysts judged the cuts to be less than meets the eye, since they were accompanied by a reduction in reseller discounts, an Apple spokeswoman said they continued the firm's year-old "high-volume, low-margin strategy," which helped boost unit volume by 60 percent last year.

Mac-watcher Pieter Hartsook, who edits the Hartsook Letter, estimated the latest cuts would push Apple's margins down "to roughly 40 percent, or in the high 30s." As recently as the second quarter of 1990, gross margins there were 55 percent.

For Intel-based PCs, meanwhile, the price cutting was inaugurated by Dell Computer Corp. and immediately followed by Digital Equipment Corp. and Zenith Data Systems.

Brian Clarke, PC pricing analyst for International Data Corp., said he expects both IBM and Compaq to follow with price reductions later this month. Cuts are "well overdue" from each and likely were in the works before Dell's move, but he said this new round of reductions would no doubt become a factor in their thinking.

Dell reduced prices by up to 38 percent across its full line of portable, desktop and floor-standing PCs. Its 33MHz 486DX-based model, for instance, was cut 25 percent from $4,899 to $3,749 for a unit with 4MB of memory and 320MB hard drive.

IDC's Mr. Clarke said Dell's unexpectedly deep action likely was driven by pressure from smaller mail-order vendors such as Compuadd, Gateway 2000 and Northgate, who "have been substantially undercutting Dell's prices, especially at the high end."

DEC responded by cutting prices by 4 to 36 percent on PCs and related products, only two weeks after an earlier price reduction that accompanied a shift in the company's PC marketing emphasis from field sales to its catalog and telemarketing operation (EN, Jan. 20).

Dennis Schneider, director of marketing for U.S. desktop business, acknowledged the new cuts were triggered by Dell's action and said the speed with which they were made was meant in large part to back up DEC's recent claim that it would be as agile as any of other mail-order vendor.

"We're the young kids on the block and we wanted to demonstrate what we said two weeks ago, that we could play the quick-change game as well as anybody," he noted.

Among the DEC machines cut was a new 20MHz 386SX-based laptop, designed with Matsushita and built by Tandy, that was introduced last week with a base price of $2,195. That configuration, including 2MB of memory, a 40MB disk drive and Windows 3.0, was immediately dropped to $1,995.

The top-of-the-line DECpc 433W was cut 25 percent, from $6,699 to $4,999, for a unit with 8MB of memory and a 40MB disk.

While margins admittedly are being affected, Mr. Schneider said vendors like DEC could benefit in the long run if continued price cutting compresses the market and narrows the gap between cut-rate suppliers and full-service companies -- a trend he already believes has started.

At ZDS, the cuts ranged from 5 percent to 26 percent, and included both desktop models and the MastersPort 386SL series of laptops, a category in which competition has gotten thicker in recent months.

ZDS officials, who claimed their price cuts had been planned for some time, rushed out a notice detailing cuts as high as 26 percent on some 33MHz 486 desktop units, and up to 23 percent on the laptop line.