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Holiday computers cheap
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November 25, 1997: 12:21 p.m. ET
While bargains can be had, few additional discounts expected soon
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NEW YORK (CNNfn) - Consumers in the market for a computer this Christmas will definitely find some bargains, especially at the low and high ends of the spectrum.
However, unlike previous years, few computer makers are expected to announce substantial discounts during the holiday shopping season.
Hewlett Packard Monday announced it is cutting the prices of selected OmniBook notebook computers introduced three weeks ago by as much as 18 percent. That news came after Compaq earlier said it was cutting prices of its Presario desktop PC line by up to 25 percent and IBM introduced new models priced below $1,000.
IBM, one of the last to market with a low-priced computer, has introduced a new Aptiva model that comes equipped with a 166-megahertz K6 processor from Advanced Micro Devices.
For those that want a little more power, Compaq is selling a 200-megahertz computer for as low as $1,199.
HP's notebooks are a bit more pricy, with a 133-megahertz model priced at $2,500, though street prices expected to be about $2,200. Notebook computers generally cost more than comparably-equipped desktops.
Christmas traditionally has been the period when prices fall, but that's unlikely to happen this year, analysts say, because processor prices will remain stable until the beginning of next year. However, previous price cuts by Intel Corp. have made some bargains possible.
"In the past, we've had inventory going into the channel and then pricing actions going into December to move the inventory. This year, PC makers have a much better handle on their inventory, so prices are stabilizing," said James Staten, personal computer analyst at Dataquest.
Staten said the lower-priced models will sell well as will lower-end systems using Intel's new Pentium II processor. Those are expected to retail for about $2,000. He said models typically priced at $2,500 and up can be had for as little as $1,500 to $1,700.
While there have always been cheap systems, Michael Gartenberg, research director at Gartner Group, said the difference now is those low-priced systems are much more powerful than before.
"You're seeing $1,000 systems that come with a Pentium 166 with 24 megabytes of [memory] and gigabytes of disk space. You could always buy cheaper systems, but now you're getting good performance at that price," he said.
Analysts say further price cuts are still possible if a company is having trouble moving a particular model, but no large-scale drops are expected because of the stability in chip prices.
"I don't see [further cuts] happening unless for some reason there's a major sales slump and Intel feels compelled to knock down prices again. Different vendors will try promotions to get people in the store, like offering larger monitors and more memory," Gartenberg said.
Other reasons for the price cuts, analysts say, are the fact that companies are trying to steal share from one another and also hope to convince shoppers they need higher-powered, more expensive systems. Analysts also caution that low-powered, cheaper computers aren't for everyone.
"A lot of these cuts are different companies trying to steal market share from one another during Christmas. These companies can take less margin or can take more off the top. A lot of people will come into the stores looking for $799 and $999 products and it will be up to the salesman to sell these people up. People need to be knowledgeable about what they need," Staten said.
"Vendors want to see you buy fully-configured, high-end systems. The question is, are there legions of users who resisted purchasing at that price? All of the major vendors are having systems in the sub-$1,000 range to offer new purchasers a chance," Gartenberg said.
Some believe the shift to direct marketing through the Internet could pose a threat to companies that currently dominate the direct-to-consumer computer market.
Vernon Keenan, senior analyst at Zona Research, said another factor that could help prices tumble a bit is the fact that more retailers are moving to the direct channel in an attempt to steal market share away from Dell Computer and Gateway 2000.
"I think there's going to be some expansion into new [retail] channels. Apple and HP are moving [towards Internet sales]. The Internet is expanding and more people are going online. We think in 1998 the word will get out that Internet commerce is safe," he said.
Keenan doesn't expect to see a big jump in the number of computer retailers moving to the Internet. What will happen, he believes, is different retailers will try to steal the thunder from Gateway 2000.
"Gateway will struggle to maintain their brand with folks like Dell and Micron playing off their strengths. They are probably the one that people will look to for acquisition. Compaq, HP, IBM and Apple are struggling on how to maintain a [direct] channel," he said.
Keenan said first-time buyers will still likely go to a retailer to buy a computer, although experienced users appreciate the flexibility of being able to design a custom-built system.
Analysts say network computers still won't make inroads this year, largely because of the fact that the new WebTV Plus models are not expected to be widely available until after Christmas.
In contrast to the original WebTV, WebTV Plus models come with hard drives and allow users to watch television and use the Internet simultaneously..
"We're still mostly in a continuing wait and see position. We are starting to see more compelling solutions like WebTV Plus, so people who passed last year might buy this year.
"Network computers and set-top boxes will make a lot of noise. But for the most part, the market is still putting its feelers out," Staten said.
Another obstacle, Gartenberg said, is that the infrastructure to support them still hasn't been deployed.
"The WebTV second generation is really a single-function device designed to surf the Web and do e-mail. The appeal here is more toward a marketplace that's likely to buy a Super Nintendo or Playstation game system or someone in the market for a second system," he said.
--From staff writer Cyrus Afzali
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