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Commentary: PC prices to climb

Most PC companies will raise their prices during the upcoming year. They will have little choice because of rising component costs.

By Leslie Fiering and Brian Gammage, Gartner Analyst

Most PC companies will raise their prices during the upcoming year. They will have little choice because of rising component costs.

See news story:
Dell prices take a new turn
In fact, Gartner forecasts that the leading companies will raise average PC prices by at least 10 percent, and notebooks by 15 percent, through 2002.

Memory was underpriced through much of 2001 as a drop-off in demand resulted in a PC oversupply. Since December, however, memory prices have quadrupled, and they will likely rise even further before the end of 2002. As a result, Gartner estimates that the average desktop PC now costs at least $100 extra to build.

High-end, fully loaded systems will cost even more. Prices for flat screens are rising as suppliers face growing demand from the PC industry's two growth areas: mobile PCs and LCD desktop displays. Undersupply has already resulted in average price increases of $25 to $35 for different screen sizes--and as much as $60 for 15-inch screens--since the start of 2002. The leading PC companies cannot absorb these cost increases and will be obliged to pass them on to customers.

In parts of the Asia-Pacific region, the leading PC companies announced price increases of 5 percent to 10 percent as early as January. In other geographical areas, companies in March began to take advantage of changing product specifications and exchange-rate fluctuation to introduce their price increases. Gartner expects more increases will follow.

Some direct sellers have started to pass along their higher component costs by making modest daily adjustments to the Web price. Indirect companies will take a bit longer to implement price increases because they have a longer distribution chain with slightly older systems still in the channel. Some companies have begun briefing their largest volume customers about future pricing plans.

Apple Computer got high visibility on March 21 when it announced price rises of around $100 on all its iMac computers in response to memory and flat-screen cost increases.

Many companies will try to stave off the inevitable increases. Last year saw significant PC price wars, and low prices remain a key competitive tactic in a slow PC market. None of the PC makers want to raise prices first, but Gartner believes that higher component costs and paper-thin profit margins will force their hands. Price rises will not signal the end of the price wars but simply a new phase that moves from cost reduction to cost containment.

The days of plummeting PC prices are over. Customers need to work closely with their suppliers on anticipating the timing and degree of price increases. Where possible, enterprises should accelerate acquisitions to beat the increases.

(For a related commentary on replacing end-of-life notebook PCs, see gartner.com.)

Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.