August 22, 2005 12:53 PM PDT

PC price wars force vendors' hands

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The number of PCs shipped worldwide will grow this year and next, but PC makers are expected to take in about 0.4 percent less in sales in 2006 from the $202.7 billion predicted this year, according to a new report by Gartner.

The research firm said PC unit shipments are on pace to grow 12.7 percent to total 206.6 million in 2005 and will increase 10.5 percent to hit 228.29 million in 2006.

The statistics underscore the pricing pressure that's squeezing PC makers even as demand for their computers continues to increase.

Prices for a basic desktop setup have hit rock bottom. CompUSA, for example, advertised a special this weekend for a $199.99 Hewlett-Packard Pavilion desktop with a monitor after about $370 in rebates. Dell has been offering entry-level Dimension desktop computer bundles for $299 for some time and desktop PCs priced at $399 are becoming more commonplace.

Price cuts are ordinary in the PC world, but the recent price wars have forced vendors to look for even the most minute cost-cutting measures, according to the Gartner report.

"We're reaching a point where PC makers are testing how low the markets can go," said analyst George Shiffler, co-author of Gartner's quarterly global PC forecast for 2005 and 2006.

To pick up the slack, many PC makers are cutting back on computer memory, offering fewer features and installing smaller hard disk drives as a way to cut prices and attract customers, Shiffler said.

Moving toward mobile
Unit growth with no revenue growth has been a tricky phenomenon for a while. Last year, Gartner similarly reported that unit shipments rose about 12 percent, but prices went down about the same percentage.

"Companies are trying to move people to mobile computers, but they are also asking themselves are enough people still interested in desktops to make it a profitable business," Shiffler said.

The HP Pavilion comes with 256MB of RAM, a CD-ROM and a 40GB hard drive, hardly the configuration consumers would want if they were thinking of burning a CD, watching a DVD or using the PC for video editing or high-end PC gaming. But the low-ball pricing helps get customers in the door, Shiffler said, allowing customers all sorts of opportunities to upgrade to an $800 or $900 machine.

Notebooks are seeing cuts, too. Recently, Dell, HP and Acer trotted out $499 Windows notebooks, a new low-water mark for major PC makers. In the past, only second-tier manufacturers offered laptops at this price, and even then they didn't include Windows.

Consumers' desire to shift from desktops to notebooks is also propelling a replacement cycle, according to Gartner. That's good news for many manufacturers' bottom line: Not only do notebooks typically sell for more than desktops, they typically also are replaced faster by consumers.

In all, 46.6 million desktops, notebooks and servers containing Intel, Advanced Micro Devices or PowerPC chips left factories between April and June of this year, according to Gartner's statistics.

Financial warnings from Dell and Gateway that PC sales were less than expected have also caught the eye of analysts who say PC makers may have reached their limit on the desktop front.

Shiffler said IBM's sale of its legendary PC business to Lenovo may just be the tip of the iceberg to the massive shift in the desktop PC market and recounted Gartner's prediction that three of the top 10 PC manufacturers would be exiting the market by 2007.

Japan's NEC may be the next in line. The PC maker is reportedly considering selling off its Packard Bell home computer division in a deal which could be worth around $180 million, according to a report in the Scotsman. A representative with NEC declined to comment on the news.

CNET's Michael Kanellos contributed to this report.


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Lets see, the PC is cheaper but Windows still costs the same
As if you need any proof the market for software is way out of
whack, take a look at the discount prices on HP and Dell systems
with Windows XP Home. if the PC is from $199 to $399, that
means the OS costs anywhere from slightly more than 50% of
the total cost on the low side, to about 25% for the slightly
beeter PC at $399. The best I can tell, you are paying way too
much money for a half-baked Windows insecure OS, while the
hardware makers are doing all they can to shave a few bucks off
the video, HD, sound card or CPU costs, all while still getting
ripped off for the OS. It will be nice to see the average consumer
learn to spend money more wisely in the years to come, once
they realize that Microsoft makes the cost of buying a PC, and
owning a PC much greater than its really worth. Sure its cheap to
buy a $400 PC but then how much do you have to spend in time,
free software and aggravation to keep the bloody mess propped
up for more than a few months. PCs are selling for a dime a
dozen now, literally, but thanks to Windows problems they cost
a heck of a lot more to keep. Macs got it covered for a few
dollars more, and then you can have a life, besides fixing a PC.
Posted by educateme (101 comments )
Reply Link Flag
OEM MS Windows no where near retail price...
"if the PC is from $199 to $399, that
means the OS costs anywhere from slightly more than 50% of the total cost on the low side, to about 25% for the slightly beeter PC at $399."

You are thinking of retail price, but you forget that neither HP nor Dell are paying retail for Windows. Go to Fry's and you can buy one OEM copy of Windows for about two thirds retail. Therefore your math is worng. No more than a third of the price could be MS Windows and even that is exagerrating the per unit price. Large computer makers like Dell I am told pay as little as $20 a copy for Windows. At $20 per copy the price of the OS is at most 10% of the cost of the computer. Futhermore, you forget to subtract the cost of all of the paid placements on the Windows Desktop. Betanews had a story saying that AOL was paying as much as $100 for placement on the Windows desktop. If you sell a linux box you probably aren't going to be anybody paying you to bundle stuff like Net2phone or Vonage or some lame overpriced ISP like AOL. When you take these bundled applications into consideration I would bet that the net cost for some companies for using MS Windows on their machines is Negative! Not that I don't like open source(I like better than MS Office), but how is GNU/Linux compete with negative net cost?

"The best I can tell, you are paying way too
much money for a half-baked Windows insecure OS, while the hardware makers are doing all they can to shave a few bucks off the video, HD, sound card or CPU costs, all while still getting ripped off for the OS."

Strange because for all the talk I haven't seen any linux boxes for $200 that are much better than wintel boxes. The only area where MS Windows has a price problem is TCO. Most people pour hundreds of dollars into software firewalls, anti-spyware software, and anti-virus software. When this security software fails they pay people to fix their problems on top of the lost productivity.
Posted by Mozillaguy (1 comment )
Link Flag
That's not all.....
You also have to consider the Intel side as well.

Look in you Sunday paper ads. I found two instances where Best Buy and CompUSA had exactly the same configuration in laptops(CompUSA) and desktops(BestBuy). The laptops were $300 dollars apart and the desktops were $250 apart. The difference? The lower priced one had AMD chips in both cases. (Turion-64 vs. Pentium-M, and, Athlon-64 vs. Pentium-4)
The AMD chips are known to perform better and in the case of the notebook chips are just as cool running. The added benefit? When Vista comes out with 64-bit only system features, the Turion(64/32 bit processor) will be able to take advantage of all the features, the PM (32-bit only) will not.
Posted by winmanjr (11 comments )
Link Flag
Macs Suck
Quit makeing fun of windows. Man you guyz are dumb when U think Apple is so grate it really makes me sick if it wasn't for Bill Gates their wouldn't be any computerz.
Posted by (174 comments )
Reply Link Flag
Are you for real?
First off, how old are you? For plural sentences, use an 'S' and
not a 'z'. For more grammer hints visit: <a class="jive-link-external" href="http://" target="_newWindow">http://</a> It seems as though you might
need it.

And second, where the hell did you get the idea that Bill Gates
started the computer PC? Ummm, check your facts son. MS
stole the UI from Apple, who had it second after Xerox. So,
infact, MS had it 3rd place there son.

Now, get back to your comic books.
Posted by NeverFade (402 comments )
Link Flag
Shameless impersonation
"Earl Bensar?" Impersonating Earl is morally reprehensible.

I may not agree with (the real) Mr. Benser all the time, but I respect his opinions.
Posted by Christopher Hall (1205 comments )
Link Flag
Apple is irrelevant. Nobody in the PC world cares about Apple.
Windows may not get cheaper but Microsoft doesn't have a monopoly over computers that use Windows. Apple won't let other manufacturers make and sell Apple-compatible computers. That move will keep Apple irrelevant to those of us in the PC World. What's Jobs announcing today? Some wacky new color for their latest computer? What's the latest PC innovation that will take 5 years before it's in a MAC? MAC is a stupid and corny name, too. I think the Apple Jack would be a better name. How about Apple Delicious? Apple Rotten? Apple Seedless? Apple Sauce? Apple Pie?
Posted by lingsun (482 comments )
Reply Link Flag
Obviously this guy is a computer novice and doesn't know what he is talking about.....
Posted by gdparks (20 comments )
Link Flag
You can't have a PC story without some idiot mentioning Apple.
You can't have a PC story without some idiot mentioning Apple. Idiotic posts like that should be deleted, the idiots banned. You just can't have a rational discussion with members of the Apple religion.
Posted by lingsun (482 comments )
Reply Link Flag
You can't have a PC story without some idiot mentioning ms
Quit worshiping Microsoft. Apple has it's pitfalls but everyone is entitled to an opinion. That and there's always the third choice, Unix.
Posted by (41 comments )
Link Flag
The computer prices include you're going to get the money
I hate rebates. How about just lowering the price of the computer instead of allowing some company in Young America, Minnesota to destroy a certain percentage of the rebate applications?
Posted by lingsun (482 comments )
Reply Link Flag
Mail in rebates are often cost a good 40 or 50 percent of the product. Buy this monitor and get a 100 dollar mail in rebate. Buy this CPU and get a 150 dollar mail in rebate. Buy this mouse and get a 10 dollar mail in rebate. By this printer and get a 30 dollar mail in rebate. Buy this modem and get a 25 dollar rebate. With all these rebates added, the price goes up by more than 200 dollars, and no doubt there are other mail in rebates too.
Posted by (41 comments )
Link Flag
I Hate Rebates.
I have always hated rebates because they always mean that you paid too much for a product. However, rebates are big business and are probably here to stay. Instead of borrowing money, rebates allow the seller to work off of your money interest free for a few months. You don't loan the seller very much, but if enough buyers take part in the plan, the interest savings can run into millions of dollars.
Posted by BR-549 (20 comments )
Link Flag
Apple is FAR from being irrelavent - Bill Sundling is a troll
How many threads do you have to start with slanderous remarks
in the headline against Apple?

You are going on the colored iMacs from the late 90s in your
posts, and you say Apple follows the PC for innovation? Ha.
Look how many companies followed the translucent color for
their own computers?! Compaq, Emachines ( which were sued )
even HP dove in with there machines having a little bit of color.
Nintendo jumped suit with the exact same color scheme.

Oh, you want other technologies?

FireWire, developed by Apple.

USB, not developed, but standardized the perf.


Oh, and my favortie, the UI. Which Apple didn't do first, Xerox
did, but brought to the market and standarized.

Quit ******** about Apple, you M$ zealot. They have a lot of
great technologies. A lot that you have probably used without
knowing about.
Posted by NeverFade (402 comments )
Reply Link Flag
Save your fingers....
.... Sundling already knows all the answers. His mind, such that it
is, has already jumped to all the conclusions he's aware of. Just
ignore him, he won't go away, but no one pays any real attention to
Posted by Earl Benser (4310 comments )
Link Flag
Don't Forget
Honorable mention goes out to the Apple Newton that was ahead of its time! Check the news flash on you PocketPC or Palm. :)
Posted by gdparks (20 comments )
Link Flag

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