Prices of computers sold at retail stores rose for the fourth
consecutive month in January while the growth in sales slowed, according
to a new report, an indication that the dizzying pace of the consumer PC
market may be slowing.
Still, consumers likely need not fret yet. The industry's hyperkinetic
ability to manufacture components and computers continues unabated, so low
PC prices will likely still be a main feature of the landscape.
The price surge, which
was predicted last October and started to be confirmed in December, is
a result of a combination of factors, according to PC Data analyst Stephen
Cooling customer interest in sub-$600 PCs, for instance, has driven
average prices up. Another key aspect is growing consolidation among PC
makers. With IBM gone, only Compaq, Hewlett-Packard and
Emachines, for the
most part, define the retail market.
"It's those pesky economic laws getting in the way again," Baker said.
"Less competition means prices going up."
The average Windows-based PC sold in January was priced at $873 or 3.4
percent more than in December, when the average PC was sold for $844,
according to a new report from PC Data, which tracks computer products
sold at retail and through mail order. The report does not track sales from
manufacturers such as Dell Computer and Gateway.
Other unique circumstances also drove prices up, sources said, and here the landscape seems to indicate an end to inclines.
Processors and memory, for instance, were in tight supply at the end of last
year, driving PC manufacturing costs up. These components are now in
greater supply, which could lead to lower, or at least level, prices.
Still, PC Data's numbers are compelling and even show a slowdown in growth
commensurate with the increases. Last month, PC unit growth continued to
slide, dropping 7.7 percent compared to the same month last year, according
to the report.
number one thing we're definitely seeing is a decline at the low-end of the
market," Baker said.
Consumers are also apparently growing indifferent to the ultra-cheap PCs
that gained attention last year. Seventy-five percent of the PCs sold were
in the $600 to $1,000 range, according to PC Data, while sub-$600 machines
accounted for only 22.9 percent, down from 35 percent in December.
"What Compaq and HP are basically seeing is that they're not getting the
bang for the buck in the low-end that they expected," Baker said. "It's too
hard to make the economics work."
|Top PC makers in January*
|% increase from last year
*Retail sales only
Source: PC Data
Despite this, Emachines, which primarily markets sub-$600 computers, took
12.9 percent of the retail market--ranking third overall--with 196 percent
unit growth over last year. Emachines is the only real player in the
sub-$600 market at this point, while HP and Compaq are marketing more robust
configurations priced on average around $899.
"Consumers have definitely not lost interest in low-end PCs--Compaq and HP
have," said Emachines CEO Stephen Dukker in an email, arguing that PC Data's
numbers don't reflect the general retail market because they do not poll
every major retail store.
"With IBM and [Packard Bell] exiting the market, HP and Compaq have
both determined that they do not need to play in this segment to achieve
their growth objectives. As such, Compaq has pulled back from $499 and, in
fact from $599 as well," Dukker speculated.
Among the main manufacturers, Compaq took the top slot in the retail
Compaq, with its 34 percent of the market, came Hewlett-Packard, with 32.1
percent, up almost 60 percent from last year. After third-ranked Emachines
came Apple with 10.9 percent of the market, up 17 percent from last year.
Apple has held steady with 10 percent of the market since the release of the
iMac, Baker said, noting that eventually the company will have to refresh
the design and feature set of the computer, as customers have been slow to
upgrade their systems.
"How long can you sell on the 'cool factor?'" he
said, noting that unlike previous Mac buyers, iMac customers have the
benefit of many more Mac-compatible peripherals. "If you buy an iMac, you're
not quite as orphaned as you once were."
Despite rising prices, consumers may not have that much to fear,
sources said. Shortages in memory, processors and other components are being
Late last year, for instance, Intel couldn't supply enough Pentium III
processors or low-end Celeron chips to PC manufacturers. That, however, is
"In Q1 we will catch up on everything," said Pat Gelsinger, vice
president of Intel's desktop products group. Likewise, AMD sold out of K6-2
chips during the fourth quarter but recently stated that sales will be
stronger than expected in the first quarter.
Interestingly, for the first time, computers running on rival AMD's
processors were priced higher than the average Intel-based computer, with 62 percent of all sub-$1,000 PCs running on Intel
Memory prices, which can have a huge impact on profit margins for the
lowest-priced computers, have also dropped.
Last October, 64-megabit SDRAM chips, the
most common memory chip found in PCs, sold for $13 in the "spot"
market--where manufacturers unload surplus--and for $10 to $11 in the
market, where customers contract to buy large volumes over extended periods
of time, said Jim Handy, an analyst at Dataquest. Memory prices spiked
the earthquake in Taiwan, which in turn caused PC prices to rise.
Now, those same memory chips are selling for $4 in the spot market and $7
to $8 in
the contract market. "But it (the contract price) will not be there for
long," Handy said. "The first month that DRAM was profitable since November
1997 was November 1999."
The price shift comes because of a surplus of memory chips, he said. Not
only did Taiwan emerge from the earthquake's aftermath quickly, companies
that were unable to manufacture
Rambus memory decided to expand production
of regular SDRAM.
Whether the price decline will result in a PC price decline remains an open
question. Sometimes, manufacturers do start engaging in price wars. At
other times, however, they merely load systems up with more memory. "If
they (computer makers) believe they have a lot of latitude, they will just
put more parts in the system," he said.
News.com's Michael Kanellos contributed to this report.