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Computer Industry Cautious About Another Price War

March 10, 1993

DALLAS (AP) _ Despite IBM’s swift reaction to price cuts by Compaq Computer Corp. the industry is cautious about engaging in another all-out price war.

IBM on Tuesday said it was reducing prices by up to 20 percent on some of its personal computers and monitors in response to an array of price cuts announced by Compaq one day earlier.

The move comes after International Business Machines Corp. drew criticism for not responding more quickly to last summer’s computer industry price war, when the major makers engaged in heavy discounting and introduced lower priced models. Some analysts then said IBM’s markdowns were too late and not deep enough to boost IBM’s slumping revenues.

IBM lost no time reacting this week.

″We will remain competitive by responding quickly to the industry as we have today,″ Michael Coleman, IBM vice president of PC marketing and brand management, said in a statement Tuesday.

But no other major computer makers have yet responded to the new Compaq prices. Houston-based Compaq introduced 39 new models along with lower pricing on some older models.

The company was careful to say that pricing would not be the focus of its competitive effort.

″Our strategy is not to be the cheapest provider of personal computers, but one who provides the highest value,″ said Gian Carlo Bisone, vice president of marketing for Compaq’s North American division.

CompuAdd Computer Corp. was studying the discounts, spokesman John Pope said.

″I don’t think Compaq and Dell are going to cut prices to the detriment of a strong bottom line,″ said Antoine Tristani, a PC stock analyst at SouthCoast Capital Corp. in Austin.

″Although you’re seeing aggressive price cutting, it’s not that much more than the cost reduction they’re seeing from manufacturing efficiencies and lower component costs,″ Tristani said.

PC makers may be able to lower some prices this spring without affecting profits because components like screens have become cheaper.

IBM’s announcement, which came after the close of financial markets, was seen as another sign that the nation’s leading PC maker must keep in step with its smaller competitors. Last summer, IBM made it clear it would compete on a cost basis with other manufacturers.

IBM’s price cuts apply to its Personal System-ValuePoint and Personal System-2 models and monitors.

″They really can’t be a price leader just because of their cost structure,″ said Tristani.

IBM’s operating expense as a percentage of sales higher than Compaq or Dell Computer Corp., the second- and third-largest PC companies, he said.

Executives of fast-growing Compaq and Dell have said they are interested in generating cash for working capital.

Dell has introduced two multimedia computers but they did not directly compete with Compaq’s new entry in features or price.

Dell chief executive Michael Dell told analysts in a conference call Tuesday that the company’s key goal this year is to win more marketshare and maintain a strong profit.

The Austin-based company’s stock tumbled last month when executives forecast a dip from its 5 percent profit margin to 4 percent in 1993.

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