IBM Trims Dealer Prices on Its PCs by 10% to 16%
IBM, which has been losing ground in the marketplace to a wave of cheap copies of its personal computers, has begun slashing wholesale prices on the machines by 10% to 16%, according to dealers and analysts.
The price cuts of up to $400, which dealers have the option of passing on to customers, won’t close the huge gaps between IBM’s personal computers and the largely foreign-built equivalents being marketed by numerous other companies.
But dealers voiced relief at finally getting some help on pricing from the big computer company. One dealer said that because of its reputation, IBM doesn’t have to match the “no-name” computers on price.
Cuts May Be Temporary
“If I go to a customer with an IBM that’s within a couple of hundred dollars of the other product, who’s gonna win?” asks Ted Hartsock of Charlotte, N.C., owner of three computer retail stores. “I am.”
IBM’s lower wholesale prices on PC and AT models had been expected for weeks and were regarded by dealers and analysts as overdue. The company would only confirm that “there have been some wholesale pricing moves” and said they are temporary.
“There is a difference between a sales promotion and a price cut,” said an IBM spokesman in Boca Raton, Fla., where the company’s personal computer division is based.
Dealer Hartsock said that the promotion is intended to run through July and August but that “these things tend to become permanent.”
IBM is estimated to have lost 5% to 7% of the storefront market for personal computers in the last year, leaving the company with one-quarter to one-third of all sales through computer stores. That excludes sales through IBM’s own outlets.
‘Too Little, Too Late’
The principal reason has been the introduction of so-called clones of IBM’s products that offer equivalent technology at lower prices--often cheaper because they are built overseas or contain a higher percentage of foreign components than IBM’s own machines.
Analyst Jan Lewis of the Palo Alto Research Group called IBM’s action “too little, too late, but it’s better than never. If they had been this aggressive earlier, maybe they wouldn’t have lost that market share. Now they’re in a situation they don’t like to be in, which is a price war.”
In addition to the longstanding competition from Compaq Computer, IBM has been confronted with low-cost computers from Leading Edge Products, Tandy Corp. and lesser-known firms. The most recent entrants are from Tandon Corp. of Chatsworth and private-label machines being sold by the ComputerLand and Businessland retail chains.
Tandon, which claims technical and manufacturing efficiencies that enable it to keep its costs below those of IBM, entered the personal computer market this week with machines that it claims will be priced 32% to 46% below the equivalent IBM products. Tandon already makes personal computers for Tandy and other marketers.
Some competitors suggested that IBM’s pricing action was prompted as much by heavy inventories as by eroded market share.
“They probably have a pretty big backlog,” said David Kirkey, sales and marketing vice president at Advanced Logic Research in Irvine, which builds an equivalent to IBM’s top-of-the-line AT personal computer for a retail price of $1,495--as much as $2,000 below the price commanded by the AT.
“Their modest price cuts will influence the marketplace somewhat, but we don’t believe they’ll be detrimental to a company like us,” Kirkey said. “They could cause some damage to the small mom-and-pop operations.”
