It's a Buyer's Market: PC Prices Plummet

Go buy a PC.

If you're considering replacing an old computer, or buying a second one, now is the time. Choose carefully, and you can bring home a hardy system from a big-name vendor for under $700. Power-hungry? Prices on high-end systems have also plummeted--in excess of 30 percent since last fall--and you might even get a free PDA or printer out of the deal.

To what do we owe such bounty? First, a well-publicized downturn in PC sales coupled with a slowing national economy has PC vendors scrambling for your business. Throw in price cuts on PC components and aggressive reductions by one deep-pocketed vendor, and you've got a big-time PC price war. Smart shoppers can claim the spoils.

PC prices are always going down, particularly as new technologies supplant the old. But the rate and pace of this year's declines are otherworldly. Toni Duboise, an analyst with the research firm ARS, offers a telling example--Dell's entry-level desktop, the Dimension L. In June last year, the cheapest preconfigured model cost $1049, including monitor. By October, that price had dropped about 18 percent, to $859, and by January it had plunged another 21 percent to $679. While the price has stalled there, Dell continues to upgrade components--a faster CPU, for example--which means today's buyers get more for that same $679 than they would have back in January.

Compaq, Gateway, Hewlett-Packard, IBM, and others have followed suit. For example, HP's Pavilion 6835, launched in April for $699 (sans monitor), is HP's first sub-$700 stand-alone PC that's shipped with a CD-RW drive, says Sam Szteinbaum, business manager for HP's North America Consumer Computing Division.

High-end systems have also seen dramatic downward price shifts. "High-end used to be $2000 to $2500, but in the last year that has dropped to $1000 to $1500 [without monitor]," ARS's Duboise says.

P4 Fire Sales

Thanks in part to aggressive moves by Intel, even systems with the company's state-of-the-art Pentium 4 CPU are selling at reasonable prices. Intel's George Alfs says some vendors are already selling 1.3-GHz P4 systems for as little as $900, and notes that prices on systems with the new 1.7-GHz P4 are also dropping.

Case in point: Within weeks of the 1.7-GHz P4 launch, Dell was offering a well-appointed 1.7-GHz P4 system with a 19-inch monitor for $1798. Meanwhile, many systems using AMD's top-of-the-line 1.33-GHz Athlon sell for even less.

Notebook deals are easier to find now, too, says Matt Sargent, another analyst with ARS. For example, Sargent says that Compaq's recently launched $1799 Presario 800 --a 3.5-pound, mobile Pentium III-based notebook--competes with products in the $2500 range, such as Sony's VAIO PCG R505TE.

In some cases, vendors are throwing in the proverbial sink to close a deal. Dell leads the charge again here, offering everything from no-cost shipping to free hardware extras. One recent promotion offered a free Digital Audio Receiver--which Dell normally sells for $199--with the purchase of its THX-certified Dimension 8100 PC. Other freebies include PDAs, color printers, scanners, and digital cameras.

Dell Fires the First Shot

While Dell won't cop to starting the PC price war, the company did start slashing prices last fall, even as overall PC sales were slumping. Analysts suggest Dell was seeking to grab market share--at the expense of competitors.

David Marmonti, Dell's director of marketing for consumer business, notes that the company's direct-sales approach has always let it maintain low inventories and quickly pass component price drops on to consumers. But Roger Kay, a research manager at IDC, says Dell has also cut its profit margins--so its competitors must go lower, too. Less-efficient vendors are left with little or no profit margin, he says. "They're forcing the competition to bleed," Kay says. "It's real hardball."

Rob Enderle, research fellow with Giga Information Group, says Dell hopes to push competitors into outsourcing production to Dell--or into leaving the PC market altogether. The strategy may be working: In March, Micron Electronics announced it was getting out of the computer business (the MicronPC division, purchased by Gores Technologies, will continue to sell computers).

Meanwhile, Dell's fourth-quarter 2000 unit sales to consumers were up a whopping 78 percent over the same period a year earlier, and the company's U.S. market share rose to 12 percent from 9 percent in the prior quarter.

How Long Can It Last?

Once PC prices drop, they rarely go back up. Vendors don't like to sell the same system for more because that frustrates customers, says Mike Ritter, director of consumer marketing at Gateway. However, if component prices--particularly DRAM costs--rise significantly, companies might not be able to absorb those additional costs, he says. PC prices might not rise, but you may end up with less RAM for the same money.

In other words, unless you are waiting for a specific technology--such as a 2-GHz processor--don't wait too long to buy. "I don't see things getting much lower," Ritter says.

So if a PC is on your shopping list, don't procrastinate. A tough economy, slowing sales, and fierce competition have forced the PC industry to fast-forward its usual downward price spiral--a harmonic convergence that may not continue into fall or winter.

PC Prices Down More Than One-Third

To see how steeply prices are falling, we asked vendors to estimate pricing on the same PC configuration (or as close as possible) for September and December 2000, and for April 2001. The results are in this chart. Except where noted, price is for a desktop with a 1-GHz Pentium III processor, 128MB of SDRAM, a 30GB hard drive, a DVD-ROM drive, a 32MB graphics card, a 56-kbps modem, and a 17-inch monitor.

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