PC Makers Wheel and Deal to Avoid Slowdown

By John G. Spooner  |  Posted 07-18-2006

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 hasn't 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.

Click here to read about how tiny notebooks are looming large.

"I just see a market that's…been pretty slow. You've got a lot of players that want to keep the factory lines going. So they're 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 that's 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 haven't seen anything come out to stop it," Fiering said.

Pricing "is very aggressive out there and everybody [at each PC maker] is hoping that [Intel's] VPro [business platform], Core Duo [processors] and all these other things—like [Microsoft Windows] Vista—will start to pull it up again."

Data from IDC's 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.

Read the full story on eWEEK.com: PC Makers Wheel and Deal to Avoid Slowdown