The PC price war will rage on this year, lowering profit margins and aggravating the problem of excess inventory for the PC giants, argued Hewlett Packard's chief executive yesterday.
In a keynote speech at the Internet World conference in Los Angeles, Lew Platt said excess inventory will cause across the board price cuts in PCs and servers - including high margin servers. However, he said that HP was not faced with the same levels of inventory as Compaq, which he blamed for helping cause the crisis by overloading its channel.
HP?s NT products will also be hit by price pressures, admitted Bill Murphy, director for Internet marketing, according to US reports. Murphy added that prices will continue to fall relatively fast, causing disruption in the market.
The impact of the year-long price war on the PC market has been dramatic - Compaq, HP and Intel have all issued profit warning recently. And according to figures from IDC, PC sales grew by 15 per cent worldwide last year but will shrink to 13.2 per cent this year.
An IBM spokesman for the UK said: ?Platt is right. PC and server prices will drop incredibly as the market becomes more segmented. In the past IBM products have been seen as good quality but overpriced.?
However, he denied that IBM is faced with an overcrowded sales channel. ?This isn?t a problem for our resellers, as we have an advanced fulfilment initiative which allows the reseller to customise PCs. We also have an authorised assembler programme for the distribution side.?
He also criticised Dell, which sells its PCs direct, for producing ?vanilla boxes without any added value for the customer".
A spokeswoman for Compaq in the UK said there were no plans to cut PC prices, after making substantial cuts in January.
But Intel?s Pentium II processor will end the price cutting spiral, according to Chris Jones, an analyst at Dataquest: ?The Pentium II will become the dominant processor in the PC market and push up the average price of PCs. Everything fluctuates according to Intel.?
He added that the problem of excess inventory was primarily a US one, with PC vendors paying the price this quarter for ?stuffing the channel with too many products and upgrades.".
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