PC makers are beginning to offer far more aggressive prices, in addition to delivering extras to customers, all in an attempt to weather slowing worldwide PC unit shipment growth.
So far, 2006 hasnt become like 2001—the period in recent history where a tanking economy caused PC shipments to decrease year over year—but the wave of PC buying that began along with economic recovery in 2003 is subsiding, leaving PC makers with fewer prospects.
IDC and Gartner, for example, each predict that 2006 PC unit shipments will rise by less than 11 percent in 2006 versus a gain of about 16 percent in 2005.
The five-point reduction represents millions of units, generally leaving PC makers with less upside opportunity.
The manufacturers, aided to some extent by price cuts from component suppliers, are reacting by cutting bid pricing for large corporate accounts in order to continue their sales momentum and protect their market share.
At the same time, the manufacturers are offering add-ons ranging from beefed-up service to management software as well as working to improve their hardware reliably all in an effort to find the secret sauce that will help them gain an edge with customers.
More than one IT manager interviewed by eWEEK indicated seeing discounts in the range of 40 percent.
“There are a lot of [PC makers] out there who are vying for a very finite number of buyers,” said Leslie Fiering, an analyst with Gartner, based in Stamford, Conn.
“I just see a market thats…been pretty slow. Youve got a lot of players that want to keep the factory lines going. So theyre duking it out,” Fiering said.
“It creates a dilemma [for them]. Do you go for profits or do you go for share? In a market thats slowing down, you have to choose one or the other. You have to use pricing protectively. Yes you use it to grow. But if you cut it too much, it goes back to your [corporate stock] share price.”
PC makers appear to be going for share at the moment, by offering larger discounts for big pricing.
Indeed, “We have seen prices in large account bids continue to decline, recently, and havent seen anything come out to stop it,” Fiering said.
Pricing “is very aggressive out there and everybody [at each PC maker] is hoping that [Intels] VPro [business platform], Core Duo [processors] and all these other things—like [Microsoft Windows] Vista—will start to pull it up again.”
Data from IDCs Tracker service shows that, average list PC prices have fallen by as much as 20 percent—a mark achieved by corporate notebooks—between the first quarter of 2003 and the first quarter of 2006.
During the first quarter of 2003, commercial desktops averaged $891, while notebooks came in at $1,407. By the first quarter of 2006, the average price for a corporate desktop fell to $809 and a notebook cost $1,118, the IDC Tracker data shows.
But one IT director, who asked not to be named given the sensitivity of the negotiations, said that after recently working a deal with Lenovo Group and IBM, he was able to obtain much lower pricing than in 2005.
“Were seeing some smoking deals on everything—laptops and desktops. Its almost toaster pricing at this point,” he said, indicating discounts in the 20 to 40 percent range.
Another IT manager reported receiving a bid price of around $2,000, a discount of about 40 percent, on high-end notebooks.
Adding on Extras
Aside from lower prices, manufacturers are packing in extras they hope can bring in sales. Lenovo, for one, offers ThinkVantage technologies, which it says cuts the cost of managing its PCs, helps avoid malware attacks and offers benefits such as easily transferring a users settings to a new PC.
Meanwhile, Gateway will open a new customer contact center in South Dakota for its business and consumer direct customers.
Dell and Gateway have also changed the way they target consumers as well as small businesses, to some extent.
Dell, which pledged to cut its PC prices following its lackluster first fiscal quarter performance, said on July 13 that it would do away with rebates and simplify its pricing for small businesses and consumers in the United States.
Gateway shifted its direct-to-consumer sales strategy toward PC bundles. It now sells consumer PCs starting at $799 via its Web site, leaving retailers to offer its lower-priced eMachines-brand and Gateway-brand PCs.
Indeed, manufacturers are putting more emphasis on large, cross-company deals that combine PCs, servers, storage and a myriad of services.
“I think the marketplace as a whole is highly competitive,” the IT director said. Manufacturers are “making it very attractive across the board to purchase a lot from them.”
While deep price cuts will probably amount to reduced revenues and profits for PC makers, the coming years could mean better PCs for businesses and consumers.
Intel and AMD are offering lower-priced dual-core processors, for one, while memory allotments continue to rise, hard drive capacities grow larger and other technology comes down in cost. The result is that PCs tend to deliver more oomph in 2006 than they did in 2002 or 2003 at lower prices.
During November 2002, for example, Gateway launched desktops using Intels then new 3.06GHz Pentium 4, which cost $1,500 or more each.
The company offered a Gateway 500XL desktop with the chip and 256MB of 333MHz DDR (double data rate) SDRAM (synchronous dynamic RAM) memory, for $1,449.
Today, a midrange Gateway E-2600D desktop fitted with Intels dual-core Pentium D 930 processor, 2GB of DDR2-DRAM (double data rate 2 dynamic random access memory), a 250GB hard drive and a CD-RW drive lists for $1,179 sans monitor on Gateways Web site.
Meanwhile in their efforts to eek out profits, PC makers have also invested in improving hardware quality, particularly in their notebooks.
Gartner has seen about a 25 percent improvement in hardware reliably over last 18 months, Fiering said.
“That aint altruism,” she said. “Investing a few pennies up front in reliability and quality assurance results in dollars saved at the back end in warranty and support costs.”
Still, “It doesnt change the underlying dynamic that the market is slowing. A lot of replacements are done—the huge surge of everyone buying in sync is now slowing down in sync,” Fiering said.
Gartner has projected that 2006 will see PC shipments rise by 10.7 percent to 234.5 million in 2006. During 2005, PC unit shipments grew 15.5 percent to 211.8 million, it said in a statement.
IDCs forecast calls for PC unit shipments growth to reach to reach 10.8 percent in 2006 and 11.7 percent in 2007, with unit shipments reaching about 230 million and about 257 million, respectively.
Meanwhile, revenue will be more meager, rising between 3 and 5 percent annually between 2006 and 2010, IDC said.