PCs Get Cheaper, For Now
For personal-computer makers, the new year can't come soon enough. Until then, the normally healthy holiday season might look like a going-out-of-business sale.
That unpleasant prospect stems from Microsoft Corp.'s decision earlier this year to delay the broad introduction of its Windows Vista operating system until next January. The news struck a blow to Hewlett-Packard Co., Dell Inc., Gateway Inc. and the rest of the $200 billion U.S. industry, which for decades had enjoyed the tailwind of a new release of Microsoft software -- particularly when it coincided with the holiday selling season.
[Pink Computer]
A Sony notebook and mouse, in pink.
Now PC makers are scrambling to entice consumers to open their wallets and not wait until the end of January, when Vista is expected to be available to consumers. Some of the planned incentives are typical -- larger screens, bigger hard drives and new hardware colors -- but many industry observers say the most powerful sales tool will also be the most painful: rock-bottom prices.
Current Analysis, a research firm that tracks weekly PC sales, estimates that, thanks in part to Vista's delay, 70% of notebook PCs sold this holiday season will be priced at less than $1,000. That compares with just 38% of notebook PCs at less than $1,000 in 2004. "It's going to be a blowout sale," says Samir Bhavnani, research director at Current Analysis
At electronics retailer Circuit City Stores Inc., the price of 17-inch-wide notebooks is falling to less than $1,000 from about $1,300 a year ago, says Elliot Becker, vice president and merchandising manager of technology. In September, Sony Corp. started offering its N-series notebook at less than $1,000 for the first time.
"We expect to see the apex of price degradation to occur this holiday," says Mike Abary, vice president of marketing for Sony's Vaio PC brand.
The price slashing underlines how the PC industry continues to be dependent on new Microsoft software. Vista is the biggest overhaul of Microsoft's operating system in 10 years, when the Redmond, Wash., software maker cemented its PC-software monopoly with the hugely successful Windows 95. Its new operating system includes features such as better ways to search for information on a PC and what Microsoft says is vastly improved security. It will be available to big businesses at the end of this month and more broadly in late January.
[Web Site]
A monitor showing a Web site for Microsoft Vista.
PC makers originally expected Vista in time for this year's holiday selling season, one of the two times a year they can count on consumers to stock up on new PCs and related gear (the other is back-to-school season). And the delay is coming at a particularly bad time for the PC industry. In the U.S., unit shipments of PCs declined by 2% in the third quarter, according to Gartner Inc. Market researcher IDC expects the U.S. growth rate for PCs in the second half of this year to be just 6.3%, versus 9.5% for the second half of 2005.
The rock-bottom prices could pressure the already razor-thin margins in the PC industry -- bad news for companies such as Dell, which has been struggling to turn its U.S. consumer business around amid stiff competition, and H-P, which has been trying to boost the profitability of its PC business under Chief Executive Mark Hurd.
Now the key issue for PC makers is clearing out products that run Microsoft's current operating system, Windows XP, with the expectation that few consumers will want those machines once Vista ships. Most of those PCs will be able to run Vista later, and Microsoft and major PC makers in late October kicked off a campaign -- called the Technology Guarantee program -- that provides any new Windows XP buyer a free or cheap version of Vista once it is available.
[Chart]
Microsoft acknowledges the PC industry's concerns over Vista's timing. "Yes, there's concerns from partners, concerns from us, concerns from everybody that we could be slowing down PC demand for the holiday season," says Microsoft General Manager Brad Brooks. But Mr. Brooks says the Vista upgrade program will help drive sales -- and buoy prices -- for the holidays. Microsoft estimates that 85% of the PCs sold this season will have the processing power and other attributes to run Vista if consumers want to install it later
H-P is delaying the launch of some PCs until Vista's full-scale debut. Bruce Greenwood, director of product marketing for H-P's North America consumer notebooks, says the Palo Alto, Calif., company wanted to develop certain products to show off features of Vista, so it didn't make sense to launch them three months before the system is available. He declined to detail the new products.
Decisions like that are rippling through the PC industry. Last week, Goldman Sachs in a report said that year-end demand for motherboards, a key component in PCs, is "falling off a cliff," a sign that PC makers are holding back new orders until Vista ships. Shares of makers of PCs and motherboards dropped on news of the report.
Some PC makers are trying more colorful pre-Vista marketing campaigns and gee-whiz products to get consumers interested. H-P is hawking pocket-size storage drives for taking downloaded music, movies and personal video on the go. Sony plans to join its Hollywood counterpart, Sony Pictures, in releasing 1,000 limited-edition James Bond-themed Vaio PCs -- with a specially engraved "007" logo and digital camera -- tied to the release of "Casino Royale." Gateway is sending six teams to various U.S. cities to gather footage of PC users for a campaign designed to show Gateway's attention to customers' needs.
[Computer and Case]
Sony's James Bond package. which will feature the 007 logo and be loaded with 'Casino Royale' content.
Many of the vendors are also pushing new colors and designs, including a pink notebook for college-age women from Sony's C-series notebooks to a wave design on H-P's dv2000 notebook. Gateway is giving its desktops and notebooks a new copper-like color, called tungsten.
The new bells and whistles notwithstanding, PC vendors know that nothing talks like a discount. Gateway says its new NX570 series notebook, which launches on Nov. 9, will sell for $699 after a $200 discount for the holiday season. H-P says its dv 2000 entertainment notebook will go for a low $569.99 after a $50 mail-in rebate.
The low prices may already be having an effect on consumers. At a CompUSA Inc. store yesterday in San Francisco, Vidal Reyes, a 38-year-old food-and-beverage worker, said he was looking for a new laptop to replace his desktop. When asked if Microsoft's Vista delay would factor into his decision, he said, "Not really." Price, he says, is more important.
That unpleasant prospect stems from Microsoft Corp.'s decision earlier this year to delay the broad introduction of its Windows Vista operating system until next January. The news struck a blow to Hewlett-Packard Co., Dell Inc., Gateway Inc. and the rest of the $200 billion U.S. industry, which for decades had enjoyed the tailwind of a new release of Microsoft software -- particularly when it coincided with the holiday selling season.
[Pink Computer]
A Sony notebook and mouse, in pink.
Now PC makers are scrambling to entice consumers to open their wallets and not wait until the end of January, when Vista is expected to be available to consumers. Some of the planned incentives are typical -- larger screens, bigger hard drives and new hardware colors -- but many industry observers say the most powerful sales tool will also be the most painful: rock-bottom prices.
Current Analysis, a research firm that tracks weekly PC sales, estimates that, thanks in part to Vista's delay, 70% of notebook PCs sold this holiday season will be priced at less than $1,000. That compares with just 38% of notebook PCs at less than $1,000 in 2004. "It's going to be a blowout sale," says Samir Bhavnani, research director at Current Analysis
At electronics retailer Circuit City Stores Inc., the price of 17-inch-wide notebooks is falling to less than $1,000 from about $1,300 a year ago, says Elliot Becker, vice president and merchandising manager of technology. In September, Sony Corp. started offering its N-series notebook at less than $1,000 for the first time.
"We expect to see the apex of price degradation to occur this holiday," says Mike Abary, vice president of marketing for Sony's Vaio PC brand.
The price slashing underlines how the PC industry continues to be dependent on new Microsoft software. Vista is the biggest overhaul of Microsoft's operating system in 10 years, when the Redmond, Wash., software maker cemented its PC-software monopoly with the hugely successful Windows 95. Its new operating system includes features such as better ways to search for information on a PC and what Microsoft says is vastly improved security. It will be available to big businesses at the end of this month and more broadly in late January.
[Web Site]
A monitor showing a Web site for Microsoft Vista.
PC makers originally expected Vista in time for this year's holiday selling season, one of the two times a year they can count on consumers to stock up on new PCs and related gear (the other is back-to-school season). And the delay is coming at a particularly bad time for the PC industry. In the U.S., unit shipments of PCs declined by 2% in the third quarter, according to Gartner Inc. Market researcher IDC expects the U.S. growth rate for PCs in the second half of this year to be just 6.3%, versus 9.5% for the second half of 2005.
The rock-bottom prices could pressure the already razor-thin margins in the PC industry -- bad news for companies such as Dell, which has been struggling to turn its U.S. consumer business around amid stiff competition, and H-P, which has been trying to boost the profitability of its PC business under Chief Executive Mark Hurd.
Now the key issue for PC makers is clearing out products that run Microsoft's current operating system, Windows XP, with the expectation that few consumers will want those machines once Vista ships. Most of those PCs will be able to run Vista later, and Microsoft and major PC makers in late October kicked off a campaign -- called the Technology Guarantee program -- that provides any new Windows XP buyer a free or cheap version of Vista once it is available.
[Chart]
Microsoft acknowledges the PC industry's concerns over Vista's timing. "Yes, there's concerns from partners, concerns from us, concerns from everybody that we could be slowing down PC demand for the holiday season," says Microsoft General Manager Brad Brooks. But Mr. Brooks says the Vista upgrade program will help drive sales -- and buoy prices -- for the holidays. Microsoft estimates that 85% of the PCs sold this season will have the processing power and other attributes to run Vista if consumers want to install it later
H-P is delaying the launch of some PCs until Vista's full-scale debut. Bruce Greenwood, director of product marketing for H-P's North America consumer notebooks, says the Palo Alto, Calif., company wanted to develop certain products to show off features of Vista, so it didn't make sense to launch them three months before the system is available. He declined to detail the new products.
Decisions like that are rippling through the PC industry. Last week, Goldman Sachs in a report said that year-end demand for motherboards, a key component in PCs, is "falling off a cliff," a sign that PC makers are holding back new orders until Vista ships. Shares of makers of PCs and motherboards dropped on news of the report.
Some PC makers are trying more colorful pre-Vista marketing campaigns and gee-whiz products to get consumers interested. H-P is hawking pocket-size storage drives for taking downloaded music, movies and personal video on the go. Sony plans to join its Hollywood counterpart, Sony Pictures, in releasing 1,000 limited-edition James Bond-themed Vaio PCs -- with a specially engraved "007" logo and digital camera -- tied to the release of "Casino Royale." Gateway is sending six teams to various U.S. cities to gather footage of PC users for a campaign designed to show Gateway's attention to customers' needs.
[Computer and Case]
Sony's James Bond package. which will feature the 007 logo and be loaded with 'Casino Royale' content.
Many of the vendors are also pushing new colors and designs, including a pink notebook for college-age women from Sony's C-series notebooks to a wave design on H-P's dv2000 notebook. Gateway is giving its desktops and notebooks a new copper-like color, called tungsten.
The new bells and whistles notwithstanding, PC vendors know that nothing talks like a discount. Gateway says its new NX570 series notebook, which launches on Nov. 9, will sell for $699 after a $200 discount for the holiday season. H-P says its dv 2000 entertainment notebook will go for a low $569.99 after a $50 mail-in rebate.
The low prices may already be having an effect on consumers. At a CompUSA Inc. store yesterday in San Francisco, Vidal Reyes, a 38-year-old food-and-beverage worker, said he was looking for a new laptop to replace his desktop. When asked if Microsoft's Vista delay would factor into his decision, he said, "Not really." Price, he says, is more important.
posted by Ravi at 11:46 AM
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