PC vendors lower pricing threshold

Spurred on by lower manufacturing costs and competitive pressures PC vendors in recent days have cut prices by as much as 24 percent lowering the price threshold on popular models just as the federal government's peak buying season begins.

Compaq Computer Corp. Dell Computer Corp. Digital Equipment Corp. and Hewlett-Packard Co. are among the companies that have slashed prices during the past 10 days. While $2 000 was the magic number last year for state-of-the-art desktops the latest round of price cuts has lowered the cost of some PCs equipped with an Intel Corp. 166 MHz Pentium MMX chip to less than $1 400 and has reduced the price of 200 MHz Pentiums with MMX technology to less than $1 600 in some cases.

In light of these cuts federal buyers are "getting more bang for their buck " said Steve Williams director of resource management at the National Science Foundation's Information Systems Division. "People are able to buy much more than they used to for the same price or even less."

Market Trends

Federal buyers are benefiting from two trends that have induced PC makers to reduce prices. First PC vendors such as Compaq and HP that sell primarily through third parties are pursuing aggressive pricing strategies to wrest market share away from direct manufacturers such as Dell.

Second the price of key PC components such as dynamic RAM and processors is declining enabling vendors to pass along the savings to customers. Vendors expect Intel to cut prices on key chips including 200 and 233 MHz Pentium MMX processors later this month.

Lower prices are influencing federal buying practices. The Administrative Office of the U.S. Courts for example plans to allow two PC-related contracts to expire at the end of this fiscal year and instead buy PCs through the General Services Administration schedule or the open market. AOUSC is taking this tack "because prices are so low out there " said Earl Kelton a computer specialist at AOUSC.

Roman Ferrer group manager of product marketing at reseller Government Technology Services Inc. has seen manufacturers become "very very aggressive in anticipation of the federal buying season." He said Compaq HP Nexar Technologies Inc. Toshiba America Information Systems Inc. and Everex Systems Inc. head the list of companies that are aggressively pricing.

Ferrer said the price reductions are too recent to have had an impact on sales but he added that he expects to see "a nice spike" in revenue by the beginning of August. He said request-for-quotation activity has already increased.

Compaq opened the industry's price reduction activity July 10 announcing a new built-to-order strategy and cuts of up to 22 percent. Gary Newgaard director of federal sales and marketing at Compaq said the company's products in the past have been perceived as too high-priced. But he said Compaq's prices have been comparable with those of direct-marketing manufacturers during the past year adding that the latest price cut "puts us ahead of the pack."

Compaq can now offer federal pricing on its Deskpro 2000 employing a 166 MHz Pentium MMX chip for $1 399 which includes a monitor. For a Deskpro 2000 with a 200 MHz Pentium MMX chip 16M of RAM a 2.1G hard drive Microsoft Corp.'s Windows 95 and a 15-inch monitor among other features Compaq's federal pricing is $1 413.

HP meanwhile also is targeting direct manufacturers with a federal promotion it launched last week. The company said it is offering a Vectra 166 MHz Pentium MMX bundle on the GSA schedule for an estimated price of $1 390. That price includes 16M of RAM a 2.5G hard drive a CD-ROM drive Windows 95 a 15-inch monitor and other features. The company also is offering a 200 MHz Pentium MMX bundle for $1 571.

HP last week announced price cuts of up to 24 percent and in its federal program is offering still steeper cuts according to HP officials. The promotion is "designed to capture share away from direct marketers " said John Guy manager of HP's federal operations. "There's a common myth that direct marketers have the right model. We don't agree with that."

HP is offering the newly priced products through GSA resellers BTG Inc. GTSI GE Capital Information Technology Solutions (formerly AmeriData Federal) Pulsar Data Systems Inc. and Westwood Computer Inc. Guy said he expects HP's GSA sales to double this year compared with last.

Alan Lawrence manager of strategic programs at HP said the company's 200 MHz Pentium MMX PCs and Pentium II PCs are generating the most requests for quotations. The company is offering a 233 MHz Pentium II bundle featuring 32M of RAM a 4G hard drive and a 17-inch monitor for $2 523 on the GSA schedule.

Technology Shift

"I think you are seeing a shift in technology away from entry-level Pentiums to the Pentium with MMX and the Pentium II " said Robert Guerra president of Guerra and Associates. He said this time last year Pentium 133 and 166 MHz PCs were in demand.

Dell also announced price cuts last week. The company said it is not responding to other vendors' moves but reflecting reduced component pricing. "There are people who have noticed what the direct model is about and are trying to emulate pieces of it " said Roger Harden director of marketing for Dell Federal Sales referring to moves by Compaq and HP. "We don't have to do anything dramatically different" in response he added.

Dell has reduced prices up to 16 percent on its OptiPlex line of desktop PCs - the fourth price cut this year according to a company spokesman. Harden said the reductions would be reflected in the company's federal pricing. GSA pricing for a 200 MHz Pentium MMX PC with 32M of RAM a 2G hard drive Windows 95 and a monitor is $1 628.

Other price-cutting activity last week included Digital Equipment Corp.'s move to reduce desktop pricing by up to 21 percent. Elsewhere Micron Electronics Inc. which offers products through the GSA schedule and the Air Force's Desktop V pact is planning to reduce PC prices in response to anticipated cuts in Intel processor prices according to company officials.Ron Clevenger manager of federal sales at Micron said he expects 20 to 40 percent cuts in the price of Intel's 200 and 233 MHz Pentium MMX chips and Pentium II processors.

Change in Buying Practices?

Industry executives suggested that the lower prices might inspire organizations within agencies to do wholesale rather than piecemeal PC replacements.

In addition the combination of lower prices and easy-to-use contracting vehicles such as the GSA schedule could make PC upgrades more frequent than in the past.

"Overall the replacement cycle for desktop is going down significantly " said Payton Smith a research analyst with IDC Government Falls Church Va. This is good news for vendors he said because the federal desktop market is fairly saturated. The only way for vendors to grow their business is through selling replacement PCs he said.

The vendor moves also put the price of top-end PCs on par with the price of network computers which can cost more than $1 400 for a unit with a monitor. Network computer vendors however contend that the initial purchase price is only a portion of the total cost of ownership of a computing device.

Still the desktop options have heightened competition causing vendors to pay attention to price and ease-of-administration issues industry analysts said."The customer should be the winner " said Greg Blatnik vice president of Zona Research Inc. Redwood City Calif.


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