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Bringing PC Profits Home for the Holidays : Manufacturers Are Pulling Out the Stops to Capture Fast-Growing Family Market

November 14, 1994|MARTHA GROVES | TIMES STAFF WRITER

About 2 million shoppers will plunk down $2,000 or so apiece this holiday season to buy personal computers for their families. Most of them are craving a pleasant "out-of-box experience" on Christmas morning: that marvelous feeling of unpacking a powerful computer with tons of built-in software, the bells and whistles of multimedia and the simplicity of bringing the whole shebang to life with the flick of a switch.

Computer makers such as Compaq, Packard Bell, Apple, IBM and Acer are happy to oblige. More than a decade after personal computing began to take off in the workplace, the home market has at last become an inviting arena for PC manufacturers. And they're pulling out the stops to provide alluring products at the right price.

"At least in the U.S. market, sales are just going to be incredible," said Robert Corpuz, a PC analyst with Dataquest Inc., a San Jose research firm. "It's a very big opportunity for the top vendors, and they're all well positioned to sell into the home market."

As the personal computer industry gathers in Las Vegas for today's opening of Comdex, its biggest trade show of the year, business is looking fine indeed. That is despite the bruising price competition and "bundling" of computer applications that have depressed profit margins and made both hardware and software more like toasters or soybeans.

Link Resources, a New York consulting firm, projects that computer hardware sales will rise 26% in 1994, to $9.2 billion. Software revenue will increase 16% this year to $2.9 billion, with multimedia games and "edutainment" products, featuring sound and video, soaring a staggering 340% to $590 million.

Accounting for much of the PC's popularity is the growing perception by the public that computers are becoming useful household appliances. Many machines today can be transformed easily into VCRs, CD players, televisions, telephones and fax machines.

"The home PC is, in fact, emerging as a digital chameleon," said Richard Zwetchkenbaum, research director for International Data Corp., a research firm in Framingham, Mass. Computers "used to flow downstream, from business to consumers. Now . . . the consumer is the driving force."

Another factor propelling the PC's popularity is its wider availability. No longer relegated to computer superstores, mail-order catalogues and specialty electronics boutiques, PCs have gone mainstream.

Computers, printers and software greet shoppers at Costco-Price Club warehouse stores right inside the front door. Mass and discount merchants such as Sears, Target and Wal-Mart have beefed up their computing departments, as have consumer electronics chains such as the Good Guys and Circuit City.

At Office Depot's 400 stores nationwide, home computers and business machines make up 40% of the revenue, up substantially from a few years ago, said spokesman Gary Schweikhart. Home office equipment at Circuit City's 279 consumer electronics stores made up 16% of sales in the first six months this year, up from 9% in the same period a year ago.

"It is the fastest-growing segment of our business," said Paul Rakov, a spokesman for the chain, based in Richmond, Va.

An estimated 46% of all computing devices sold today are for the home; most complete systems cost between $1,200 and $2,700. Given that more than two-thirds of America's 97 million households still don't have personal computers, the home represents "the largest untapped market in the world," said Michael A. Norris, vice president of consumer products for Compaq Computer Corp.

Compaq, based in Houston, gets much of the credit for starting the boom a couple of years ago by offering aggressively priced products for the home. Its Presario computers are selling as fast as the company can ship them, Norris said, even at the rate of thousands a day. They are now offered in more than 6,000 stores, up from fewer than 900 two years ago.

For consumers, the chief problem this holiday is that some popular models might be in short supply as the holiday season rolls on, said Jake Winebaum, publisher and editor of New York-based FamilyPC, one of several magazines that have sprung up in recent years to capitalize on the hot home market.

IBM, for example, acknowledged recently that it underestimated demand for its Aptiva line of multimedia computers for the home, which can respond to voice commands. Like other manufacturers, IBM, known primarily in the past as a maker of business systems, is heeding the multimedia call and is moving quickly to include the capability to play CD-ROMs on all its home offerings.

With so much at stake, manufacturers are getting bolder about advertising their wares. In time for the holidays, Apple Computer Inc. has launched its first "infomercial" in San Francisco and Boston. During Thanksgiving week, the Cupertino-based company plans a nationwide rollout of the half-hour ad about its Performa line of Macintoshes.

Despite the buoyant outlooks, Zwetchkenbaum of IDC believes that the industry will not reach its full potential for sales growth in the home market unless it brings prices down further. For most households to be comfortable making a computer purchase, he noted, the price would have to be less than $700.

Mark Macgillivray, a Silicon Valley consultant, agreed. "The more companies try to outdo one another," he said, "the more they raise expectations" and risk disillusioning home users.

But for now the industry is forging ahead.

Said Norris of Compaq: "The home market will be the fuel behind PC growth through the decade."

PCs: Looking Hot!

Personal computer makers have finally taken a shine to the home market. Analysts predict solid sales growth as customers snap up multimedia computers.

PC sales

Revenue in billions of dollars

'95*: $10.9

PC software sales

Revenue in billions of dollars

'95*: $3.8

Multimedia software sales

Revenue in millions of dollars

'95*: $1,207

* Estimated

Source: Link Resources

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