What a difference a season makes. When Bob Vanderheiden, a newspaper systems manager from San Francisco, priced an Apple Macintosh IIfx computer for the office this winter, it was $7,369. By the time he closed the deal on the equipment a few weeks ago, the tab had dropped to $5,300. Vanderheiden also picked up two additional Macintoshes, three monitors, software, keyboards and a printer for a total savings of $12,000 over the midwinter estimate. “It was awfully nice to get some essential equipment at an incredible price,” he says.
As the Crazy Eddie ads used to say, the prices are … well, you know. Strained by the recession and increased competition, manufacturers are slashing prices with the kind of frenzy usually exhibited by electronics discounters and used-car salesmen. According to Susan Yamada, an analyst for Merrin Information Services in Palo Alto, Calif., street prices for some models have dropped by as much as 15 percent. Apple kicked it off late last year with new, lowerpriced Macintosh models-and cut prices on its high-end products in March. Compaq Computer Corp., whose stock sank 27 percent one day last week on disappointing profit projections, slashed its suggested retail prices by as much as 34 percent in April. Toshiba quickly followed with its own round of cuts on selected models, as did IBM-and Big Blue is expected to announce new cuts this week of up to 24 percent on some models. Even scrappy Dell Computer Corp., already a low-price manufacturer, reduced systems by as much as $900. “Manufacturers need to move product,” says JoeAnn Stahel of research firm StoreBoard/ Computer Intelligence. “The result is that it’s the greatest time in the world to purchase a computer.” Economic fears and the erosion of brand loyalty are keeping the pressure on prices. As the recession drags on, many buyers are taking a wait-and-see attitude toward updating their aging computer equipment. “Companies that don’t have a cheap product to offer lose the customer who’s hunting for a bargain,” says Richard Shaffer, editor of industry publication ComputerLetter. While the demand for machines made by second-tier “clone” manufacturers is increasing, allegiance to companies with cachet like IBM and Compaq is on the decline. Many retailers are feeling the heat, too, thanks to increased competition from new “superstores” and a growing mail-order computing business. “It’s a much more price-sensitive market than ever before,” says Bruce Lupatkin, a technology analyst with Hambrecht & Quist in San Francisco. “Computers have become commodities-almost like TV sets.”
That may be good news for consumers, but could be bad news for the U.S. computer industry. American manufacturers are being forced to compete with their Asian rivals on price, rather than quality. And that’s a problem, because it’s often cheaper to manufacture computers overseas than in the United States. “As soon as you’re in the consumer-products area, you’re on Japanese turf,” says Sheridan Tatsuno, publisher of NeoJapan Newsletter. “It’s very much like what happened with the VCR. At first, it was a high-end professional machine. Then, the Japanese turned it into a consumer product.”
Just how much more squeezing can the industry take? Rick Martin, an analyst for Prudential Securities in New York, believes these cuts might just be the beginning. “If the market doesn’t turn around by Labor Day, then the next round of price cuts will be deeper,” he says. Those prices won’t just be insane. They’ll be painful.
