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Apple Scored for Big Price Hikes

Lawrence J. Magid is a Silicon Valley-based computer analyst and writer

Computer users have been spoiled. Even as the cost of living rises, the cost of computing generally falls steadily, due to new technology, production improvements and increased competition. If only cars and houses were like computers. . . .

Unfortunately, the trend of ever-declining computer prices has been blunted recently by tight supplies of dynamic random access memory, or DRAM, chips that enable computers to process information.

Worse yet, Apple Computer on Sept. 12 announced big price increases on its computers--its first price hikes ever on products already in the marketplace. The Cupertino, Calif.-based company also boosted prices on laser printers, monitors, disk drives and other components. Apple blamed the increases on DRAM prices, along with the fluctuating value of the dollar and other market conditions.

“We have to watch profitability so we can continue to invest in our technology,” a company spokeswoman said.

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Some of the increases were dramatic. The suggested retail price of a basic Macintosh II, with one megabyte (approximately 1 million characters) of memory and no hard disk, was boosted $1,100, or 29%, to $4,869. The price of a Mac SE with two floppy disk drives was raised $400, or 14%, to $3,169.

Undoubtedly, the increased prices for memory chips and other components are driving up the production costs of the Macintosh. But many Apple customers and analysts, angered by the increases, have accused the company of taking unfair advantage of the fact that no one else makes a machine compatible with the Macintosh.

The Apple spokeswoman conceded: “We do have proprietary technology that does set us apart. Business has never been stronger for us.”

She added: “We don’t anticipate demand changing.”

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Some analysts believe that Apple could continue to turn healthy profits even without price increases. When it introduced the Mac II and Mac SE in 1987, Apple bragged that its high-tech manufacturing facilities were cutting production costs, and the company has posted record profits for the past two years.

Memory chip prices didn’t shoot up overnight. They started on an upward trend more than a year ago and have fluctuated within a relatively predictable range. Even without Apple’s buying clout, you or I could walk into an electronics store and buy a megabyte of Macintosh-compatible memory for as little as $349, yet Apple increased the prices on its one-megabyte machines by up to $1,100.

Apple isn’t the only company with higher costs. Everyone making computer hardware must cope with the shortage of DRAMS. The smaller companies face even harder times since they have less cash and far less buying power than the big guys.

Even so, most companies have held the line on their computer prices. Some companies, including Hewlett-Packard and Wyse Technology, have even lowered prices on their personal computers in the past few months. On Monday, Compaq Computer introduced a powerful and speedy new personal computer that, with a starting price of $5,200, is 15% cheaper than the machine it replaces.

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The main difference between the Apple and the IBM-compatible markets is competition. Apple owns copyrights and patents that prevent others from legally cloning its Mac. If you want to buy a Mac, you get one from Apple. Yet hundreds of companies make IBM-compatible PCs.

Even genuine IBM equipment sometimes costs less than roughly comparable Apple machines. IBM recently reduced prices on some computers in its new Personal System/2 line and this month introduced an attractive PS/2 at a competitive price.

The Apple price hikes came a week before Monday’s announcement of a new high-end Macintosh II and an upgraded version of the Macintosh SE.

The Mac IIx will start at $7,769 for a basic unit with four megabytes of random access memory and one floppy drive. The 80-megabyte hard disk version will go for $9,369. The new SE, which comes with two megabytes of memory and a 40-megabyte hard disk, has a list price of $5,069. When I first saw those prices, I was reminded of the sticker shock I had when I last bought a car. But the prices of the new machines are not that much higher than the newly increased prices for the older models.

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The only Mac escaping the price increases is the old Mac Plus. Like the old Mac SE, it comes with one megabyte of memory and has a place to plug in an external hard disk. But it was not designed to accommodate an internal hard disk drive or additional memory.

Nevertheless, a number of companies manufacture memory upgrade boards, internal hard disk drives, connectors for large monitors and other expansion options that work with the Mac Plus. There are even boards that make the Mac Plus perform as fast as the pricey Macintosh II. With a suggested price of $1,799 and a street price as low as $1,299, an expandable Mac Plus is worth considering.

Generally, I don’t complain about a company’s business practices, but I find Apple’s price increases upsetting. It seems as if Apple is retreating from the low-end small-business and home markets that helped take the company from a garage business to a Fortune 500 company. Apple is also putting pressure on big corporate customers. I’ve long been a fan of the Macintosh, but at these prices I find the computer hard to recommend to cost-conscious buyers.

And I’m not the only one who is concerned. On-line bulletin boards such as CompuServe and MacNet are buzzing with comments from disenchanted users who love Apples but find these prices hard to swallow.

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