HP, DEC cut consumer PC prices

Electronic News, Oct 30, 1995 by Reinhardt Krause

New York--Hewlett-Packard and Digital Equipment Corp. last week cut prices on consumer personal computers amid some signs that the multimedia boom that has fed the PC market could finally be cooling off.

While HP reduced pricing on its Pavilion 7000 series models by up to $200, DEC also cut pricing on its Starion consumer models by up to $200. In another move, DEC hired away a top IBM PC strategist and pledged to fight for market share in coming months.

Dataquest, meanwhile, is predicting modest growth in the U.S. multimedia PC market. After 300 percent and 400 percent growth rates in shipments over the last two-and-a-half years, the market is now growing at a more modest 15 percent to 20 percent, Dataquest said.

U.S. multimedia home PC shipments slipped from a 4Q 1994 high of 2.11 million to 1.74 million in 1Q 1995, and to 1.65 million 2Q 1995, Dataquest said. Further bolstering the indications toward slower growth, a Dataquest survey of U.S. home multimedia PC owners indicated that the market demographics have shown virtually no change from the previous three years.

"Contrary to the prevailing chicken in every pot, a multimedia PC in every home mentality, we are now seeing a more sane growth in the market," said Bruce Ryon, director and principal analyst for Dataquest's worldwide multimedia service.

The Dataquest forecast is more pessimistic that Packard Bell's recent survey of PC users, which revealed that almost 25 percent of PC households have more than one home computer and 14 percent of current owners plan to purchase another system within the next year.

The 1995 Home PC User Survey conducted by Packard Bell is based upon 1,700 respondents who purchased Packard Bell PCs within the last year. "As multimedia computers become more affordable, powerful and user-friendly, families are adding a second PC in their household," said Mal Ransom, vice president of marketing.

While the majority of home PCs still reside in an office or a study, 16 percent are now found in the living room or family room, 5 percent in the dining room and 2 percent in the kitchen, Packard Bell said.

Anticipating the competitive PC landscape, several PC makers cut prices earlier this fall to maintain market share. That round of pricing adjustments, though, impacted business desktop models more so than consumer models. HP reduced prices up to 18 percent on its entire family of Vectra desktop PCs while Compaq cut prices on its systems by 13-25 percent and IBM by 9-26 percent on its Series 300 and Series 700 desktop systems.

However, it was the multimedia boom and consumer sales that promoted a strong PC market last year as Packard Bell and Acer both gained market share at the expense of Compaq. At a recent conference, International Data Corp. forecast that Microsoft Windows 95 availability could keep 4Q sales healthy but pointed to some component shortages as a possible negative factor.

In fact, AST Research this month blamed the delay in launching the latest in its Advantage line of multimedia PCs on a sluggish supply of 1.2GB to 1.6GB hard disk drives and 28.8 Mbps modems. Other vendors have cited shortages of CD-ROM drives and memory.

In addition, component shortages have been reported in the notebook computer market as vendors switched to Pentium-based models. As a result, a pricing battle in the notebook market is seen as less likely.

Some fall-off from the heady 1994 PC market has been expected though most PC makers have been projecting a stronger second half. Although Intel is also anticipating a PC slowdown--but not until 1Q, 1996, according to industry sources--the MPU king is laying the ground for a rival in the second half of 1996. By that time a new PC platform will emerge based on the multimedia-enhanced P55C, which will dovetail into videoconferencing, Internet and other applications Intel has been targeting.

Meanwhile, the price cuts by HP will likely draw some response from Packard Bell and other competitors, industry observers said. "The new pricing of the HP Pavilion PCs clearly communicates that HP has what it takes to be a top-three PC vendor," said Harry W. McKinney, general manager of HP's home products division. HP was only ranked in the top 10 PC makers in 1994 by IDC.

In addition to cutting prices on some Starion models last week, DEC introduced three new consumer PCs. Digital also named Bruce Claflin, who had been involved in IBM's development of the ThinkPad notebook computer line, as the new VP and GM of DEC's Personal Computer Business Unit.