Compaq is feeling the heat.
Today the No. 1 PC manufacturer slashed prices on its Presario line of
consumer desktop computers in an effort to put some distance between itself
and competitors such as Hewlett-Packard, which
have been gaining on Compaq.
Compaq has now brought
Compaq cuts Presario prices
consumer systems below $1,000 for the first time.
The price cuts come on the eve of a new direct buying program for small and
medium-sized businesses as well as the release
of new Presario computers based around K6-2 processors from AMD, sources said.
While the upcoming Presarios have likely contributed to the cuts, market
share battles fueled by dropping component prices are also having an
effect, analysts say.
"My opinion is that Compaq is trying to create and
protect market share in the face of the aggressive stances that HP and IBM are taking," said Kevin Hause, an analyst
at International Data Corporation. "This is also typically what you
see this time of year, as systems are set into place."
Prices on PC components such as hard drives and processors continue a
relatively steady decline.
Compaq's aggressive price cuts result in some of the most robustly
configured sub-$1,000 systems to date. Compaq discounted its Presario 5050
from $999 to $899. The 5050 features a 333-MHz Celeron processor, 8GB hard
drive, and 96MB of memory, a configuration that hardly resembles the pared-down sub-$1,000 systems of last holiday season.
Compaq's other Presario,
shaved to $999, includes a 350-MHz K6 processor and 128MB of memory.
Typically, sub-$1,000 systems come with less memory, smaller hard drives,
and slower processors.
"We're seeing some very compelling systems for under $1,000, and that's
going to continue," Hause said. "The lowest floor for top-tier
manufacturers is $599, which is going to continue to go down over the next
year. That makes a $999 system 4 to 5 price points up from that, which gives a
lot of flexibility."
Compaq was knocked out of the top spot in the retail sub-$1,000 PC market
last month by HP and IBM respectively, according to data from ZD Market Intelligence, although Compaq
retained first place overall for retail PCs (including notebooks).
"HP has shown they want to compete, and they continue to grow market
share," Hause said. "I wouldn't expect them to sit on their
hands--they're a very powerful vendor that needs to be reckoned with."
Reactive price cuts from top-tier consumer PC makers in the next few weeks
would not be unexpected, Hause noted, especially as PC makers try to balance
their holiday inventory.
"It's going to depend on what happens with their inventory, but I wouldn't
rule it out at this point," he said. "Now it's a matter of tweaking your
prices to keep demand high, to build momentum as we roll towards Christmas,
so that you can dump out your inventory...so that you're ready in January
when you refresh the systems."