March 21, 2002 2:50 PM PST

iMac price increase not contagious

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Although Apple Computer raised the price of its new iMac by $100 on Wednesday because of rising component costs, PC makers probably won't follow with similar increases.

Despite price increases on flat-panel monitors and memory over the past five months, most computer manufacturers will probably maintain their current prices or even cut prices in the relatively near future, analysts predict.

In what could be called a feasible tradition, computer makers have conditioned the public to believe that prices go only one way: down. However, manufacturers have devised techniques to ensure that they can accommodate this assumption without losing their collective shirt.

Rather than raise prices, PC makers will reduce the amount of memory or change the hard drive in a given model, analysts say.

"Typically what the Intel guys have done in the past is 'de-feature' the configuration and keep the price the same," said Roger Kay, an analyst at IDC. "The expectation of ever lower prices was created by the industry, and they are loath to break with tradition."

"We have a very complete and stable product line with very few configurations," noted Greg Joswak, senior director of hardware product marketing at Apple. PC makers "can tweak their products here and there. Our strategy has been to keep our configurations the same."

At the same time, these companies enjoy more benefits from the huge economies of scale of the PC industry. Components for Intel-based computers are often less expensive and subject to more frequent discounts. These companies often buy more components, qualifying them for larger discounts and first dibs on tight supplies, said Kay and others.

Even before Apple raised the iMac price, Gateway was selling similarly configured PCs with flat-panel monitors that cost $300 less than the new iMacs. Dell Computer, Hewlett-Packard and Compaq Computer offered similar PC flat-panel combinations that cost anywhere from $49 to $249 less than the equivalent iMac.

The new entry-level iMac, for instance, comes with 128MB of memory, close to the minimum for running Mac OS X smoothly, said Stephen Baker, an analyst at NPD Intelect.

"They don't give themselves a lot of flexibility," he said. "They just got hit with a couple of whammies...it is an occupational hazard."

Additionally, Apple often uses more exotic components, which don't experience the same sort of discounts that more commodity-like components do. Substitutions can also be difficult to find. The new iMac, for instance, comes with a flat-panel screen that meets slightly higher viewing specifications than most flat panels, sources in the panel industry said.

Apple could likely have taken some earlier actions such as bringing out the iMac at a higher price at the launch to prevent the price increase. "Everybody pretty much knew at the beginning of November that these two components were going up," Baker said.

But in the long run, it won't likely affect sales, he said.

 

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