Possibly sparked by a 10 percent price cut on Dell corporate desktops earlier in the week, Compaq and Hewlett-Packard have fought back with sizable cuts of their own.
HP announced Thursday that it would cut prices on corporate desktop PCs by as much as 28 percent. Compaq Computer reduced PC prices by as much as 31 percent Tuesday.
Price cuts such as these normally reflect reductions in processor prices from Intel or Advanced Micro Devices as well as lower PC component prices for items such as memory.
While chipmakers have cut prices, there's also an element of competition to the cuts, executives at the PC makers acknowledge. The slowing economy has led to lower than usual demand, forcing the intensely competitive PC industry into a price war.
"Dell has been more aggressive (on price) than most of the other guys throughout this year," he said.
"What we've seen this week is more of an evening out" of prices, Murphy said. "These guys are catching up with Dell."
IDC data shows that Dell cut prices on corporate desktops by roughly 10 percent this week. Compaq and HP responded with cuts in the range of 28 percent to 31 percent on some of their systems, closing the gap, executives from the companies said.
Prices on corporate PCs, however, are more fluid than some might expect. PC makers offer additional discounts off list prices to large companies that intend to purchase many PCs. These discounted prices can then be packaged with support services and other perks to help woo customers.
HP's price cuts, on Vectra vl400 and vl800 corporate PCs, were as high as 28 percent. The company reduced prices on Brio ba410 PCs by about 15 percent. HP also is offering additional rebates--ranging from $100 to $400--for certain Vectra and Brio models purchased during May.
The price cuts stem from two areas, said Dave Zabrowski, HP's vice president and general manager of business PCs for North America.
"Component prices continue to fall at a fairly rapid pace," he said. "It's our intention to continue to be competitive with our offerings."
For example, HP's Vectra vl400 model P4155T, with a 1GHz Pentium III processor, was reduced from $1,875 to $1,599, a 17 percent drop. HP cut prices on 13 other v1400s. A Vectra vl800 P3636T model, outfitted with a 1.7GHz Pentium 4 processor, was reduced by $908 to $2,839. The company made similar reductions on 11 other v1800 models.
HP also cut prices up to 15 percent on Brio ba410 PCs aimed at small businesses. Prices on LCD monitors were cut by up to 18 percent.
Meanwhile, Compaq cut prices by up to 31 percent on DeskPro EN PCs and 20 percent on DeskPro EX PCs, the company said.
Compaq recently reorganized its consumer and corporate PC businesses into a single entity, seeking to cut costs. Lower costs resulting from the reorganization helped the company reduce PC prices, said Steve Telaroli, North American business product manager for desktops in the company's new Access Business Group.
"It's that plus passing on component cost reductions direct from suppliers," Telaroli said.
But competitive pressures do enter into the pricing game.
"We have to be able to maintain a...position out there in the marketplace," Telaroli said.
A Compaq DeskPro EX model with a 1GHz Pentium III processor, 128BM of RAM, a 40GB hard drive, a CD-ROM and a network interface card was reduced by $286 to $1,102, a 21 percent drop. A DeskPro EN model with a 1GHz Pentium III, 256MB of RAM, and a 20GB hard drive was reduced by $577 to $1,283.00, a 31 percent cut.
Thanks to reductions in component prices, IDC's Murphy believes that Dell will be able to cut prices again soon. The other PC makers will likely follow.
"I wouldn't be entirely surprised to see (Dell) cut prices again, but it will probably not be within the next week or so," he said. "I think (Dell) can sustain a price cut of 7 to 10 percent, but it's not likely they could do it again for another three to four weeks," he said.
A more immediate price reduction, such as one forced by a competitor, could eat into profit margins, a move both Dell and its competitors would like to avoid.