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Others Likely to Follow Compaq, IBM in Price Cuts

August 25, 1994|KAREN KAPLAN and ROSS KERBER | TIMES STAFF WRITERS

An escalated personal computer price war between market leaders IBM and Compaq will likely lead to more bargains for business customers as other PC makers also slash prices, company officials and analysts said Wednesday.

International Business Machines announced Wednesday that it would cut prices by 10% to 27% on personal computers, particularly on 486 desktop machines meant for business uses.

The Armonk, N.Y.-based company's decision came nine days after Compaq Computer Corp. in Houston dropped prices on similar models 7% to 22%. Compaq led the industry in sales through the first six months of the year.

Analysts said they expect more PC makers to join soon in the cost-cutting.

"The silly season is here again," said Ian Gilson, an analyst with the investment banking firm L.H. Friend Weinress & Frankson Inc. in Irvine. He said that computer prices often decline at the end of the summer. "They're doing what they have to do to move products at the end of the summer doldrums, get rid of that old inventory."

Noel Djimtoloum, supervisor of Circuit City's computer department in West Los Angeles, said he expects other companies to match the lower prices, based on past experience.

Wendy Abramowitz, an analyst with Argus Research in New York, said computer manufacturers are pushing down prices on their business-oriented, high-end computers because the pace of corporate upgrading has slowed recently. Strong retail demand at the consumer level will probably keep prices close to their current levels for the time being despite the newly announced cuts, Abramowitz said.

A spokeswoman for Apple Computer said the company was in a different pricing situation than IBM and Compaq, since its machines are built around different processing chips, and that Apple does not plan any announcements in the near future regarding price cuts. A spokesman for AST Research Inc. said the Irvine-based company would not comment on pricing questions.

Compaq has larger profit margins on its machines and therefore can afford a price war better than IBM's PC unit, said Michael Kwatinetz, a PaineWebber analyst.

Businesses are usually savvier buyers of computer equipment, and their ability to buy in bulk makes them a natural target for computer manufacturers who want to move as many machines as possible before new products are introduced at an autumn trade show, analysts said.

Bob Smith, a systems support analyst for Century 21 International in Irvine, said the real estate franchise company is taking a hard look at what new machines it might order in the wake of the discounts. Century 21 was in the process of buying a large number of machines from Compaq, he said, adding that the company has bought several thousand mostly Compaq PCs so far this year.

But Compaq's lower prices now have Century 21 considering whether it should continue to buy Compaq's 486 machines as planned or whether it could now afford to buy its computers based on the faster Pentium chip.

"We were expecting there to be some cuts," Smith said. "We had held off making the jump (to the Pentium machines) because of the price. . . . Now it's a hard business decision about which way to go."

Area retailers said it could take a few weeks for the cuts by Compaq and IBM to make their way into stores--and perhaps longer.

Tigran Tsiligian, a corporate sales account executive with CompUSA in Culver City, said his business customers are not aware of the recent round of PC price-cutting until "we bring it to their attention and stick it in their face."

And consumers--conditioned to expect falling prices--said they are numb to news of additional discounts and uninspired by the latest round of price wars.

"There really is no good time to buy a computer because a price war is always going on," said Mel Gallardo, who was shopping for a computer Wednesday in at a Computer City store in Torrance.

"Everything always gets smaller, quicker, faster and cheaper," agreed shopper Betsy Baker. "When the prices drop, it just means something (better) is coming along."

But Donald Russell said he would wait until Christmas to buy a personal computer if it meant saving $200.

IBM shares closed down 37.5 cents at $67.25 in New York Stock Exchange trading Wednesday. Compaq shares were unchanged at $36.25.

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