Price cuts spark portable PC price war

Compaq Computer and Sony ignite a portable PC price war as both companies dramatically slash notebook prices.

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Compaq Computer and Sony ignited a portable PC price war Sunday as both companies dramatically slashed notebook prices.

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Compaq and Sony spark notebook price war
Matt Sargent, analyst, ARS Capitals

While consumers will benefit, the price reductions will back all retail notebook makers against a wall, analysts say. Hewlett-Packard and Toshiba, for example, are expected to match Compaq and Sony with price reductions or rebates.

"We're clearly in a price war," ARS analyst Matt Sargent said. "The notebook market has stayed away from that and now it's gone full force the other way."

Sony's price cuts were more unexpected than those from Compaq, which typically announces new portable models or price cuts right before the Thanksgiving holiday.

But Compaq cut fast and deep, slashing two Presario 1800 models by $300, with one of those reductions closely following another $200 cut.

The price reductions mean Compaq's fully loaded 18XL390 with 850-MHz Pentium III processor, 15-inch Super VGA+ display, 128MB of RAM, 20GB hard drive, DVD drive, 56K modem and 10/100 networking sells for $2,799. The similarly configured Presario 18XL380 with the 700-MHz Pentium III processor goes for $2,499.

"Below three grand on a 15-inch screen and top-end processor is very aggressive," Gartner analyst Ken Dulaney said.

Compaq cut prices in response to Sony, which picked up enough momentum in August and September to drive longtime second-ranked holder Toshiba to fourth place.

"I think Compaq is responding to how well Sony is doing," said PC Data analyst Stephen Baker.

The deep discounts also are a sign of slowing notebook sales and show Sony's determination to knock perennial portable retail sales leader Compaq out of the top spot, analysts say. For its part, Compaq appears ready to fight for its No. 1 standing.

"The guy that was the anti-price-war leader, Sony, its price savings are more aggressive than anybody right now," Sargent said. "It's a little hard to decipher Sony's plans, but they may see an opportunity to take share from Compaq during the lucrative holiday season."

As the crucial holiday shopping season approaches, the price war reflects a weakening in the notebook sales market, analysts say.

"My concern is a softening of demand for notebooks," Dulaney said. "That's why we're seeing some of the price reaction here."

Slower sales mean companies such as Compaq, HP, Sony and Toshiba, which rely heavily on retailers to move their wares, could be watching stock build up on dealers' shelves. With Intel expected to release the mobile version of the 1-GHz Pentium III sometime after the holidays, Compaq and its competitors may be looking to clear out inventories now, Dulaney said.

Sargent agreed the reductions could indicate weakness in notebook sales. "I don't have data to show this yet, but the price cuts are a good sign of slowing sales."

Sony gaining
Compaq and Sony led the retail notebook market in September, according to market researchers.

Compaq had 41.6 percent share and Sony 20 percent in September, according to NPD Intelect. PC Data put Compaq at 38.1 percent, down from 45.5 percent in August, and Sony at 24.2 percent. October numbers from PC Data, due out this week, are expected to show continued erosion in Compaq's retail market share.

Both market researchers have Sony moving from fourth to second place between July and September.

Sony has gained on leaders by pushing higher-selling notebooks packing multimedia options: DVD, 15-inch displays and movie-making features, such as IEEE 1394 ports for connecting to digital camcorders and video-editing software.

"Sony's success shows that people are willing to spend a little more on notebooks. Compaq, HP and Toshiba want to get some of that business," Baker said.

The average selling prices of Compaq and Sony notebooks show the differences in the buyers they target. Compaq's average selling price on retail notebooks was $1,537 in September compared with $2,273 for Sony, according to market researcher NPD Intelect.

"Until now, Sony has focused more at the higher end of the market, but now they're pushing down," Baker said. "I think HP, Compaq and Toshiba feel a little threatened."

Compaq's $100 rebates on some Presario 1200 and 1700 push back against Sony cuts in the $1,400 to $2,200 range.

"It doesn't surprise me to see aggressive pricing from Compaq in the middle- to higher-end range," Sargent said. "With this price action, they're fighting for the $1,700 to $1,800 range to make sure Sony doesn't move into that space."

In the end, the deep discounts favor Compaq for delivering the fastest systems at the best prices below $3,000, but Sony's offering is still impressive, analysts say.

Sony cut by $200 the Vaio XG38 and Z505LS to $2,899 from $3,099, with an additional $100 off via mail-in rebate. With 700- and 750-MHz Pentium III processors and smaller displays, the two Vaio models fall short of the Presario 1700's and 1800's features for the same price. But Sony is hoping to attract consumers with sleek multimedia features packaged in a thin-and-light design, analysts say.