Bad News for Santa on PC Prices

The trend toward cheaper personal computers may come to an abrupt end this holiday season, with analysts expecting computer costs to jump significantly due to parts shortages.

PC prices could climb as much as 20% this fall because of a dramatic decrease in the number of memory chips, also known as RAM, available on the world market.

“What people will see is that for the same amount of money they will be getting less machine,” said Rob Enderle, vice president of mobile and desktop technology at the Giga Information Group, a Norwell, Mass.-based market research firm.

Last month’s earthquake in Taiwan pushed prices upward as suppliers struggled to meet burgeoning demand for low-cost computers heading into the busy electronics selling season. Taiwan accounts for 12% to 15% of the world’s supply of memory chips.

Analysts differ on how long the shortage might persist, with the pessimists predicting that it could take as long as six months for supplies to return to normal levels.

RAM currently accounts for 5% to 7% of a computer’s overall cost, but that could increase to about 10% of a system’s price tag this fall. If so, 64 megabytes of RAM typically found in a $1,000 PC would increase in price from $48 to about $80, said Steve Cullen, principal memory analyst at Newton, Mass.-based Cahner’s In-Stat Group.

Computer makers will be forced to pass this cost on to consumers, analysts say, because they’ve already exhausted other price-cutting methods on PCs, such as including fewer software programs. PC manufacturers depend on the holidays for as much as 20% of their profits.

“Margins in the PC business are not good to start,” Cullen said.

An added pressure on notebook computer prices comes from a shortages of liquid crystal display panels, analysts say.

International Data Corp, in Framingham, Mass., predicts that “serious shortages” of the display panel components will continue through next year. Dell Computer already has been forced to reduce shipments of laptops to some customers.

IBM says it does not anticipate any price increases, but the company added that it will “be competitive” with other PC makers, suggesting that it would follow the market if prices rise.

Analysts suggest that consumers planning to make PC purchases this fall do so now, while lower-priced machines are still available. Unfortunately, there are few of these machines left, causing some computer makers to warn that there could be shortages.

The nation’s largest PC maker, Compaq Computer, said recently that there will be delays in shipments of selected products to some stores this month and in November. Most of the delays will be in machines built to retailers’ orders.

These delays, however, will not result in significant shortages, said Alan Hodel, a spokesman for Compaq.

In addition, those buying high-performance PCs with lots of memory should hold off until the end of the year while Intel works the bugs out of chips included in these systems, Enderle said.

Things could get worse before they get better. Memory chip prices fell as much as 50% in 1995 and up to 10% earlier this year. But today the market is so tight that analysts expect price increases in RAM to continue indefinitely.

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Times staff writer Jennifer Oldham can be reached at jennifer.oldham@latimes.com.

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Times staff writer Joseph Menn in San Francisco contributed to this report.