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HP wants business PC lead

HP has cut prices on the middle tier of its corporate computer line, as it makes a play to be the low-cost leader in the business market.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
A week after releasing new low-end Vectra desktops, Hewlett-Packard (HWP) has cut prices on the middle tier of its corporate computer line, as it makes a play to be the low-cost leader in the business market.

Hewlett-Packard (HP) is also touting a new study which says that the company's corporate sales of desktop PCs have more than tripled since a year ago.

A study to be released today by International Data Corporation shows that HP's sales into medium and large businesses and government grew by 111 percent in the last quarter, according to HP.

Prices on Vectra VL computers were cut from five to eight percent today, with one model descending below the $1,000 price point. The Vectra VL with a 166-MHz Pentium MMX and a 1.6 GB hard drive will now sell for an estimated street price of $984, a eight percent reduction from $1,074. HP also dropped the price on memory upgrades.

Hewlett-Packard now has a number of sub-$1,000 business PCs, and it appears to be leading the charge to low-cost business PCs in much the same way that Compaq is doing this in the consumer market.

"They are selling millions of Vectras," said Roger Kay, computer analyst at IDC. "Their unit sales aren't as high as Compaq but their unit growth is higher."

Kay added that HP's recent growth rate in the large business segment is the largest for any of the major vendors.

The Vectra VL with a 200-MHz Pentium MMX and a 2.5GB hard drive was reduced eight percent from $1,432 to $1,325. A 300-MHz Vectra VL with a Pentium II processor also received a three percent price cut, to $3,117.

Last week, HP released new models in the Vectra VE line, which is one step below the VL line. Ironically, a similarly configured Pentium MMX 166-MHz Vectra VE now costs more than its Vectra VL counterpart.

With today's announcement, HP now has three models in three separate computer lines in the sub-$1,000 range.

"We are seeing situations where corporate accounts are buying [sub-$1,000 PCs] for users who don't necessarily need a Pentium II or Pentium MMX above 200-MHz," said Emilio Ghilardi, worldwide marketing manager for commercial desktops at HP. "They used to give these people old machines. So far we wouldn't call this a booming business but we're starting to see some interest in corporations," he added.

HP has been aggressively cutting prices all year in an effort to increase market share and, in many respects, the effort is paying off. For the third quarter, HP's market share grew from 5 percent to 7.1 percent in the U.S. and from 4.1 percent to 5.8 percent worldwide, compared to the same quarter a year ago, according to International Data Corporation.

Unit shipments in both markets grew by over 60 percent. Much of this growth came from medium and large businesses, as HP's share in those markets grew faster than its overall growth rate, according to IDC. However, the company's desktop market share grew as well, reflecting that HP has set a goal of becoming the No. 1 provider of computing equipment.

Meanwhile, a number of computer resellers have reported that corporate computer buying slowed down in November while inventories in the channel nudged up. Technology overload, stock market shifts, a short month, supply shifts such as this generally prompt price cutting by vendors.

Ghilardi stated that HP's price cuts today come as a result of supply chain efficiencies HP instituted earlier this year, rather than any demand fluctuations. More will come in the future, he added, when HP begins to manufacture computers through a "build-to-order" initiative.

Under HP's build to order effort, HP will ship stripped down systems to resellers, who will then install hard drives, memory, and other parts pursuant to customer order. This type of assembly increases customization and reduces bottom line costs by streamlining inventories. A similar strategy is used by IBM.

The assembly program was supposed to start in earnest this month, but has been put off until January, he said. In addition to the system cuts, HP also reduced prices on memory upgrades by as much as 22 percent. The cuts follow the massive price declines that have been seen all year in the computer memory field.