Windows 98, price drops lure buyers

PC sales climb a whopping 37 percent in June, while the average selling price hit a new low of $1,123.

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The combination of new Windows 98 systems and falling prices lured consumers back to computer stores in June, according to the new study.

In mixed news for retailers, PC sales

June's top vendors
PC vendor Market share
Compaq 25.4
IBM 15.9
Hewlett-Packard 12.9
Packard Bell NEC 10.5
Apple 9.4
Source: PC Data
climbed a whopping 37 percent, but the average selling price hit a new low, according to PC Data. The findings contrast with an 18 percent sales decline in May, when vendors cleared out older merchandise and consumers waited for Windows 98 to arrive.

In addition to boosting overall sales, Microsoft's new operating system appeared to play an important role in determining last month's market share. Vendors like Compaq and IBM which promptly introduced Windows 98 computers saw their share rise significantly, while competitors such as Hewlett-Packard that waited to release Windows 98 systems slipped in the rankings.

Windows 98 computers in fact made up 29 percent of June sales, even though the upgrade was only on the market for the last 10 days of the month.

Consumers also went for June's bargains. The average selling price last month was $1,123, down 20 percent from June 1997, PC Data said in its report.

"It's very likely that the average price will be $1,000 by the end of the year," predicted Stephen Baker, a PC Data analyst.

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Prices are generally are being pushed down by falling component prices, including memory chips, hard drives, and processors from both Intel and Advanced Micro Devices. Intel announced price cuts in June and July, while low-cost chips from AMD accounted for four of the six top selling desktops in June.

Compaq's new consumer "Internet PCs" provided a shot in the arm for the Houston-based vendor, which had slipped to the No. 2 spot in May. The company today announced price cuts on these systems, which promote home Internet access by means of fast modems and a strategic tie-up with GTE. The price action is expected to cement Compaq's leading position for July and further drive down PC prices.

"It will only stoke the fire a little more," Baker said.

IBM, one of the few vendors unaffected by May's downturn, retained the No. 2 spot in June on the strength of its low-end systems with processors from AMD. "Their sales were up substantially, because they had good Windows 98 products, priced aggressively with AMD processors," said Baker. "They're consistently the No. 1 or 2, along with Compaq."

Despite the fact that its Celeron-based HP 8250 was the top-selling desktop in June, HP slipped two positions to No. 3. The company's inventory dwindled later in the month, just as new Windows 98 systems from other manufacturers started appearing in stores. "That might have been the only decent product out there early on," said Baker. "But they were not replenishing the stores with that [model] so they were basically selling through what they got."

Packard Bell NEC continued its yearlong disappointing performance. "They still haven't shown any sales growth," Baker noted. "They always positioned themselves as a price leader, but that's not the position they've been in the last few months. Other manufacturers are getting more aggressive about getting products out there with nice configurations and lower price points."

Apple rounded out the top five, with a little under 10 percent of the retail market. But Baker was skeptical of that standing.

"They're growing a little bit, but you have to look at what is Apple, and what is the Apple OS," Baker cautioned. "The Apple OS is not growing at all, they're just taking up the market share of Motorola or Power Computing," he said, referring to one-time Macintosh clone makers that have since left the market.