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From...
Intel price cuts make their mark on PC prices
September
25, 1998
Web posted at 2:30 PM EDT
by Rex Farrance
(IDG) -- You read about it over your morning coffee: "Intel Slashes CPU Pricing" (See link below). The cuts look substantial, with the Pentium II-400 down $107 (from $589 to $482). A closer inspection reveals commensurate reductions on most of the other Intel processors. But only the biggest PC vendors get these deals from Intel -- right? So will the average buyer even sniff the savings?
History has taught us to be skeptical, although the common argument of PC vendors -- that the sharply competitive market doesn't allow room for padded margins -- sounds logical.
Competitive Darwinism
To put this argument to the test, PC World decided to gauge the extent and immediacy of vendor response to Intel's latest round of cuts in mid-September. So approximately a week after the announcement date we researched many of the Pentium II-400 systems from our October 1998 Top 20 Power Desktops chart, asking vendors for a price just preceding the announcement along with the postannouncement cost.
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The results were intriguing. Announcement-related reductions were most noticeable in products sold through distribution. IBM's PC 300PL -- a speedy network-ready PII-400 with a raft of cool corporate features -- provides a good example. This model, which was number nine on our October chart, went for $2798 when priced for our October Top 20. But the system dropped as low as $2674 in recent weeks. And after Intel's announcement, IBM cut the price another $125 to $2545 -- a direct response to the $107 drop in the processor's cost.
Hewlett-Packard made an even larger reduction on its Vectra VL Series 8, which ranked 15th on our chart in October. This speedy corporate system has a clean, easy-open design. The preannouncement price was $2750. But the price came down to $2545 within the last week, for a drop of $205. According to HP, the size of the reduction reflects savings not only on the CPU, but also on other components.
The biggest break of all
As we tallied more calls, we noted that some companies prefer to add to a configuration rather than subtract from a price. Direct vendors were particularly likely to take this approach. One major direct seller -- Quantex -- was a conspicuous exception. The company's QP6-Sm-3x (a Best Buy at number four on our October chart) had been priced at an affordable $2249. By September, the same configuration had dropped to $2199. But that reduction was nothing next to the recent cut of $400 to $1799. Quantex would say only that the lowered price "also factored in significant savings on other components." Needless to say, this already highly rated model looks particularly attractive at such a low price.
Drop the price or load the machine?
NEC is among those companies who like to offer an improved configuration for the same money. Take for example the $2247 NEC Direction SP B400 that made the power desktops chart at number six in October, just missing a Best Buy. NEC increased the size of the hard drive from 4.3GB to 8.4GB and upgraded the entry-level speakers to a mid-range set that includes a subwoofer, improvements worth about $200.
Other companies declined to discuss specific models, saying that rapid changes in component costs and shifts in configurations prohibit apples-to-apples comparisons. Dell, for example, has changed the base RAM on the number five Best Buy Dimension XPS R400 from 64MB to 96MB -- and also changed other elements (such as hard drive size) too much to allow a direct comparison.
A Gateway spokesperson reports a similar policy of passing savings through to customers, "either as a cash reduction or through a stronger configuration." Since its GP6-400, a number two Best Buy, is still currently available, the company said its price was down $141 from $2464 to $2323 (although the change occurred before Intel dropped its prices).
As with Dell's October entry, Micron's configuration of the number one Best Buy Millennia 400 has also changed significantly. Spokesperson Robert Wheadon said, "We're as aggressive as possible on prices -- just look at our $1899 Millennia 450 450-MHz home PC. When we get price breaks we pass them along. But on premium configurations like our Millennia Max -- which is configured for people who want everything -- we'll usually add the savings back in more features at the same price."
We also tried to reach Compaq for information on its Deskpro EP Model 6400X/6400/CDS, which earned a number eight ranking on our October chart. Unfortunately, the product team was unavailable for comment.
It all goes to the bottom line
Our research indicates that it's often difficult to draw a one-to-one correlation between changes in specific component costs with changes in the price of a system. However, we did note some cost cuts keying on Intel's recent announcement. On the whole, it really does appear that vendors return cost reductions to customers -- either in lower prices or improved configurations.