Feds to benefit in brewing price war

Compaq Computer Corp. may have touched off a renewed price war in the PC market with the recent announcement of low-priced, high-powered models. Hewlett-Packard Co., IBM Corp. and Digital Equipment Corp. responded with new models and price cuts of their own. This round of price competition could accelerate just in time for federal buyers to benefit during the busy summer buying season.

Compaq's price cuts were as much as 21 percent, while Digital responded with cuts as large as 19 percent. HP and IBM cut server prices and introduced less expensive desktop PCs.

"It is another sign that the PC market is slowing down from heady growth to long-term, sustainable growth," said Joe Ferlazzo, senior analyst for Technology Business Research, Hampton, N.H. "PC manufacturers are not going to be able to charge the premium that they have in the past," he said.

Traditionally, PC vendors cut prices aggressively during busy times of the year—summer, in the case of federal vendors. For companies to cut prices now, "there must be a major lull," said Jan Morgan, a research analyst with IDC Government Market Services, Falls Church, Va. "[Lower prices] might be just what they need to get a boom in buying back."

Many PC vendors reported lower-than-expected fourth-quarter sales, a trend that has carried over into 1996. In the federal market, the three-week government shutdown complicated the purchasing environment for vendors. The price competition is compelling the top PC vendors to offer low-end Pentium models for less than $1,400.

Some industry executives, however, questioned the impact of price cuts on the federal market. Federal PC vendors have already based their prices on lower chip prices from Intel Corp., according to Bob Guerra, executive vice president of Sysorex Information Systems Inc. "[PC vendors] are advancing price reductions that they didn't anticipate," he said. "We were reflecting those [prices] anyway."

But Compaq expects its PCs, slated to arrive on the General Services Administration schedule in about a week, to be competitively priced in comparison with those offered on indefinite-delivery, indefinite-quantity contracts, said Gary Newgaard, manager of federal sales and markets for Compaq.

The company is also working to add the new PCs to such contracts as the National Guard Bureau's Reserve Component Automation System, a contract held by Boeing Information Services.

Competitors in the federal market "will mirror our actions, as they have in the commercial market," Newgaard said of his company's price reductions.

Compaq's Lineup

Compaq latest offerings include the addition of 150 MHz and 166 MHz Pentium processors to its ProLinea product line in desktop and minitower configurations. The product line now spans 100 MHz to 166 MHz and features hard disk drives between 840M and 2G. Compaq has also cut the prices of existing ProLinea models by as much as 15 percent.

Compaq's DeskPro line has also added 150 MHz and 166 MHz Pentium chips as well as 180 MHz and 200 MHz Pentium Pro processors. Existing DeskPro models have been reduced in price by as much as 21 percent.

The company also introduced new technologies that are designed to give Compaq an edge on its competitors. Compaq's LS120 floppy disk drive holds 120M of information on special 3.5-inch diskettes, but it also can read and write information on older 1.44M and 720K diskettes.

"We believe that it will become the next diskette drive standard because of the backward compatibility," said Greg Young, senior business manager for options and software at Compaq. "It allows you to take files off the hard drive and use the floppy for near-line storage," he said.

Compaq also introduced a rewritable CD-ROM drive called PD-CD that will let users store as much as 650M of information on their CD drives. When it is reading standard CD-ROMs, the PD-CD works like a quad-speed CD drive. The commercial street price for this item is $559, and the disks cost $80 for a pack of two.

Vendors Respond

Digital sliced the prices on its 75 MHz and 90 MHz Venturis PCs and 90 MHz Celebris GL slimline PCs to make way for its new, faster models. The Celebris' prices were cut more than $700. HP cut the prices on its slower Pentium models in preparation for a likely shift to Pentium Pro on server systems. The company also introduced a new line of desktop PCs that range from 75 MHz to 166 MHz Pentium processors and that range in price from $1,300 to $3,000 in estimated commercial street price.

IBM introduced new servers in the PC Server 300, 500 and 700 families. The company added 100 MHz and 133 MHz Pentium processors to the entry-level PC Server 310 and 320 lines, while the PC Server 520 is now 133 MHz, and the 720 is available at 166 MHz. Commercial prices will start at $3,869 for the PC Server 310 and will climb to $4,478 for the PC Server 720.

The PC 700 desktop model will switch on through remote command over a network. This allows network administrators to perform updates and maintenance remotely, even if the PC is turned off. IBM is adding a 166 MHz Pentium chip and will offer an optional Matrox Millennium 3-D graphics card.


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