Normally, when demand for a once hot commodity runs into a dry spell, that translates into lower prices for customers, as manufacturers try to jump-start sales. But that isn’t happening in the corporate personal computer market, even as the global PC business suffers through one of its worst slumps in years.
Still, this week, the two leading PC makers, Compaq Computer and Dell Computer, both confirmed that their financial performance is suffering because of the slowdown in PC sales. In Dell’s case, The Wall Street Journal reported that the company is slashing prices to hold on to market share.
But so far, the impact of Dell’s price cutting hasn’t led to lower prices for corporate buyers. “It takes time for price drops to work their way through the system,” says Gordon Haff, research director for the Aberdeen Group, a Boston market research firm. So far, enough time hasn’t elapsed.
Haff says he has seen evidence of price cutting, but in the consumer market, which has historically been the most price sensitive corner of the PC industry. For the corporate market, there’s been some modest price reductions in commodity desktop systems, where employees are mostly using Microsoft Office applications on standard Intel architecture systems.
But the commodity desktop market is not where the growth is. Corporate users are investing a greater proportion of their technology budgets toward laptops, servers and high-end workstations. These purchases are largely being driven by business goals, where the corporate buyers see the computers as filling a specific business need and are less prepared to seek bargain prices.
For workstations and high-end PCs that serve financial applications on Wall Street, engineering systems in the automobile and aerospace industry, and digital content creation for Web sites, there’s been little need for manufacturers to cut prices because the demand in these markets is largely inelastic.
Pia Rieppo, an analyst with the San Jose, Calif., market research firm, Gartner Dataquest, says high-end workstation prices have already been coming down steadily for years, particularly as systems built upon Intel processors invade the turf of Unix boxes built by Sun Microsystems, IBM, Hewlett- Packard, and others. The average high-end workstation cost $15,200 in 1996. In 2000, a comparable system cost $7,000.
Rieppo says recent price cuts in the workstation market recently have largely been a continuation of the long-term decline and have not been caused by the market’s weakness.
Still, Aberdeen’s Haff says he expects to see price cuts ultimately benefit corporate users as the price war heats up between Intel and its chief rival, Advanced Micro Devices. For some high-end systems, the microprocessor is the single-most expensive component, and lower chip prices should automatically translate into lower desktop prices.