With rebates, HP angles for PC sales

For retail buyers in the United States, the company is offering several new rebate or promotional programs, designed to stimulate demand for its PCs, going into the back-to-school shopping season. Some of the deals include a new $200 mail-in rebate on desktops, while others offer instant $50 rebates.

Many retailers have entered summer with promotions of their own, and some other PC makers, such as Dell Computer, have also stepped up their efforts over the past week. The new deals all aim to pique interest in PCs as parents and students plan for the coming school year and to help clear out inventory before new models arrive this fall.

If the rebates don't work, however, HP could get scorched. New models could pile up on top of inventory spillover from its spring and back-to-school product refreshes--a real possibility, given the recent lack of sizzle in retail sales.

"It's hard to get rid of inventory when sales are at historic lows. Desktop volumes in April and May were essentially running at 1998 levels," said Steve Baker, an analyst with NPDTechworld.

HP, now the largest seller of PCs in the U.S. retail market, plans to make one of its most important product refreshes in years this September, when it unveils its first new jointly developed HP and Compaq Computer desktop and notebook product lines.

But an inventory glut, stemming from slower-than-expected sales in April and May, could make the transition more difficult. HP Pavilion desktops inventories were running at 6.5 weeks in May, while Compaq Presario desktops were at 10 weeks, according to NPDTechworld. The number of week refers to the duration the companies' inventory will last. The company has done little to reduce those inventories from April's levels of seven weeks and 10 weeks, respectively. The ideal inventory level is considered to be enough PCs to meet demand for three to four weeks.

"The market slowed in April, May and June, and we have adjusted our plans to deal with the fact that our inventories were higher than normal as a consequence of lower-than-forecast sales," an HP representative said. He declined to provide further details.

The consumer market is a fickle beast. Year-over-year sales had been improving steadily each month through March, but then dropped off precipitously in April, catching HP off guard.

PC unit sales declined by 6.5 percent year over year in May, according to NPDTechworld. Desktop PC unit sales dropped 11.6 percent year over year during the month, while notebook sales grew 8 percent.

While there's no question that desktop PC sales have been disappointing, Baker said May's declines were much less than those of some months--March, for instance, saw a 17.5 percent year-over-year decrease. That improvement of sorts could be one sign that there's nowhere to go now but up, he said.

"There's a lot of money still being spent. Things look bad in specific areas, and desktop PCs is one of them. But when I take a broader view, things aren't as dour as you'd think," Baker said. "The categories that have been propelling sales look like they're going to maintain their momentum."

Products like notebook PCs, flat-panel displays and multifunction peripherals--devices that include a printer, scanner and fax--are still selling well at retail, Baker said.

"The amount of decline is declining," Baker said. "It's difficult to see July and especially August being as bad as in the past."

Counting on discounts
But that won't keep HP from needing to clear out its weeks and weeks of inventory.

The company has already launched deeper discounts on certain models. It may have to step those programs up a bit, however, to make way for the models due in September, Baker said.

This week, HP launched its new "Summer 2002 Desktop Bundle" program, which offers a $200 mail-in rebate on Compaq Presario 6000 series, 8000 series or 4000 series PCs when purchased with a Compaq MV series, SS series or FP series monitor and an IJ or 1400P printer. The program runs through September, according to ARS, a company that tracks PC sales at retail.

HP is also offering a $200 mail-in rebate on several of its Pavilion desktops when customers buy them with HP Pavilion mx or f series monitors and specific models of HP printers, scanners, multifunction peripherals or cameras, according to ARS.

The Palo Alto, Calif.-based company is also making additional offers for certain models. One grants $50 cash back on Presario 4403US and 4406RSH desktops, sold at retail. The rebate, which ends Sept. 21, can be combined with the summer 2002 desktop bundle rebate, according to ARS.

But analysts like Baker expect the company, and possibly its competitors, to have to do more in order to stimulate demand and clear the way for new products.

"It's hard to make transitions when sales and interest are low. That's going to mean rebates and some aggressive prices over the next three to four weeks," Baker said.

Indeed, retailers are also getting in on the action with rebates of their own. Best Buy is offering $100 mail-in rebates on all of its PCs, while Circuit City is offering a $100 rebate on Pentium 4-based machines when purchased with a printer and monitor. Both rebates expire Saturday.

These rebates make it possible that a customer could receive up to $350 off a desktop such as the Presario 4403US PC. But it's still unclear whether that will be enough to convince consumers to upgrade their PCs rather than buying electronics equipment such as DVD players or MP3 players, or nothing at all.

HP has also stepped up rebates, discounts and free upgrades on PCs sold direct to customers. It's offering a $100 rebate on Presario 4000 series, 6000 series and 8000 series build-to-order models. It is also offering $50 to $100 off memory upgrades and free optical drive upgrades for the PCs as well, according to ARS.

Build-to-order machines are sold directly to customers and are manufactured only after an order is placed, as opposed to similar models that are manufactured in advance and stocked at retail stores.

Dell, which only sells PCs direct to customers, has begun offering several free upgrades for PCs sold via its Home and Home Office Web site.

Customers who purchase a Dimension 8200 desktop online receive free shipping and free upgrades to better optical drives and larger monitors. Buyers can get free shipping and a free optical drive upgrade and receive a $100 mail-in rebate if they opt for a four-year warranty with Dimension 4500 PCs.

"It's going to make for interesting deals for people who are willing to run out and pick up something now," Baker said.