PC Price Wars Begin to Shake Loyalties

Dell, Compaq Battle for Users by Slashing Prices.

Once reluctant to change PC horses in midstream for lower prices alone, large companies faced with stringent cost-cutting policies are finding it increasingly difficult to ignore the temptation of dramatic price cuts.

In particular, the race for market leadership between the two leading PC makers, Compaq Computer Corp. and Dell Computer Corp., is causing the two PC stalwarts to devise creative savings opportunities for corporate buyers—in some cases resulting in 50 percent discounts.

In return, corporations in growing numbers are either going for the better deals or using them as leverage to enhance existing ones.

This is in stark contrast to what many IT administrators have said in recent months—that price alone has little impact on their buying decisions.

"In todays business environment, system pricing has taken on greater importance, particularly from top managements point of view," said Steve Davis, manager of server technical support at Rohm and Haas Co., a specialty chemical company based in Philadelphia.

Thats exactly who Dell salesmen are targeting. The Round Rock, Texas, direct marketer is stepping up its pursuit of Compaq customers by offering deals that in some cases include price cuts of up to 50 percent and free hardware, software and services.

Compaq customer Brian Potts of Associated Food Stores Inc., in Salt Lake City, said Dell representatives pushed to get an audience with him. "I made it clear to them that we were happy with Compaq and let them know it would take something tremendous for us to even look at them," said Potts, a network manager. "[But] we were wowed," particularly by the price, he said. "We ended up buying 12 servers, so far."

In recent months, Dell also has pursued Rohm and Haas, which largely relies on Compaq for its 18,000 PCs and 400 to 500 servers. "What Dell wants to do is bulldoze Compaq out of here," Davis said. "I dont think well buy their servers, but they may be gaining ground on the PC side."

Davis said that while Compaqs products are top quality—hes in the midst of deploying dozens of new Compaq servers—the current economic slump has made the company more receptive to low-price offers. "Like everyone else, our company is looking to save on expenditures," he said, "so if Dell can present a good enough deal, I could see us going with them."

Even large corporate customers that traditionally stuck with one vendor are seeing opportunities in the Dell-Compaq battle to save thousands of dollars, said another IT manager for a large U.S. corporation with more than $50 billion in sales, who asked to remain anonymous.

"A lot of executives are finally recognizing that leveraging a major contract with the vendor is a little cheaper in the long run, in both your ability to negotiate better pricing on hardware and also your ability to drive down support costs," the manager said.

Dell has been vocal in its strategy of gaining market share in the PC and server arenas by offering low-cost deals, even at the cost of losing profit margins. So far, the strategy seems to be working.

Dell overtook Compaq for the top spot in PC sales last week, according to market research companies Gartner Dataquest, in San Jose, Calif., and International Data Corp., in Framingham, Mass., a position Compaq has held for seven years.

Dell also is chipping away in the low-end server market. Its sales of PCs and low-end Intel Corp.-based servers (those priced at less than $25,000) soared 34 percent compared with a year ago, garnering 12.8 percent of the world market, according to Gartner Dataquest.

Meanwhile, Compaqs unit sales grew less than 1 percent, leaving the Houston company with 12.1 percent of the world market.

Dells push is taking its toll on Compaq, particularly in sales of Intel-based servers, a key component of Compaqs plan to boost enterprise sales. Compaq CEO Michael Cappellas last week said that despite shipping 10 percent more Intel-based servers during the first quarter, revenues from those sales fell 9 percent, due largely to price cuts the company was forced to make to remain competitive with Dell.

"The slowing economy and falling component prices have really played to Dells strengths," said Todd Kort, an analyst at Gartner Dataquest. "Their more efficient business model enabled them to pass on cost savings more quickly than their competitors."