If last year saw the hotting up of the PC market price war, this year we are witnessing the fallout. Both Unisys and AST have pulled out of manufacturing desktop PCs, while doubts hang over the Digital range of PCs following Compaq's takeover bid. Hunger to maintain and expand market share forced the market leaders to take an aggressive stance on pricing last year. But only those companies with manufacturing facilities large enough could use their economies of scale to keep their profits up and survive. Chris Jones, market analyst with Dataquest, believes the current stage of the price war started this time last year with Compaq cutting desktop PC prices. Dell, Hewlett-Packard and Siemens Nixdorf soon followed suit. "They were all desperate to keep market share, and now you can see the top vendors moving away from the middle tier, such as Unisys, Olivetti, AST and Tulip," he explained. "The larger players have been able to drop their prices because of their strength and higher margins in servers. Smaller European and worldwide players lack the aggression of the top-tier players and have not been able to compete." Market leaders such as Compaq and HP cite the need for market share in desktops as a prerequisite in achieving their ambitions to dominate the world computer market. The battle continues. HP has just announced further price cuts, dropping the street price of its MMX-based machines to #717 and its Brio Pentium II to #1,135. Dave Thompson, UK marketing manager for HP, said the new prices would help HP become the largest PC manufacturer in the world. "We have to think like a market leader and be able to react quickly to the market needs in a flexible way on pricing, while maintaining profits," he said. "It is the profit part that vendors such as AST and Unisys have not been able to do." James Griffiths, senior product manager for commercial desktops at Compaq, agreed. "We have been able to pursue a very aggressive pricing policy because of the volume of PCs we produce and our efficient manufacturing processes," he said. "I am not surprised to see casualties in the market. A lot of companies started assembling PCs as an opportunistic move but they have been unable to stay profitable." For those dropping out of the desktop market the price has been high. AST has said that it will cut half its European workforce in restructuring, and has decided now to concentrate on laptop production. AST refused to put an exact figure on redundancies. Unisys will take a #125 million charge for its move, announced in January, to outsourcing its PC production, and refused to make any guarantees on job losses. A spokesman for Unisys told PC Week that this was the only way to keep unit costs down. "You probably need to make around a million PCs a year to remain competitive," he explained. "We were producing about 300,000 so it was not viable, but we still want to stay in the market, keep control of the specifications and offer our customers the full range of enterprise products." Although Compaq executives remain tight-lipped on the future of Digital's PC range, there have been indications of cuts here too. Compaq CEO Eckard Pfeiffer recently stated that "a lot needs to happen" over lack of efficiency at Digital, and Mike Winkler, Compaq senior vice president and group general manager for PCs, said that Digital currently had no PC technology missing at Compaq. The only question remaining is who the next victim of the price war will be. With pressure from the leading manufacturers, combined with competition from clone vendors in the retail sector, the middle tier of the market is the most vulnerable, according to Jones. "Elonex, for example, will be under great pressure. It will be difficult for the company to maintain a strong position, especially with rivals like Tiny gaining in the consumer end of the market," said Jones. But Demetre Cheras, marketing director at Elonex, maintained that direct selling, added customer services and a broad customer base are the keys to smaller vendors holding their own. "We sort out whatever the user needs in terms of systems, servers, and now even disaster recovery," he claimed. "We also keep our customer base broad - the armed services, local government, health service, as well as controlled retail and enterprise base, including small businesses. With a more diverse range of users, we can smooth over glitches in any particular market."
Cotton seedling freezes to death as Chang'e-4 shuts down for the Moon's 14-day lunar night
Fortnite easily out-earns PUBG, Assassin's Creed Odyssey and Red Dead Redemption 2 in 2018
Meteor showers as a service will be visible for about 100 kilometres in all directions
Saturn's rings only formed in the past 100 million years, suggests analysis of Cassini space probe data
New findings contradict conventional belief that Saturn's rings were formed along with the planet about 4.5 billion years ago