Today's buyers of personal computers may congratulate themselves on having waited to get the maximum memory and speed for the dollar.
But in a matter of weeks, if not days, they may be kicking themselves for their lack of patience.Unprecedented drops recently in the prices of computer components have accelerated the dizzying spiral - more and more memory and faster and faster speed.
In the first quarter of this year, the price of dynamic random access memory, called DRAM or RAM, fell 50 percent. That's the memory that helps determine what kind of programs a computer can run and how many programs can be used simultaneously.
For microprocessors, which control a computer's basic functions, the price is also dropping as the speed increases. In January, Intel Corp. brought out a 166-megahertz Pentium processor for $740. In June, the company's early version of a 200 MHz Pentium was priced at $599.
Last fall, 75 MHz was considered plenty of speed. To accommodate Windows 95, which debuted in August, experts recommended upgrading the DRAM to eight, or preferably 12, megabytes.
"We'll probably end this year with 133 MHz being the low end of most vendors' lines," predicts Nathan Brookwood of Dataquest Inc. And he recommends against buying a machine that has less than 16 megs of DRAM.
"There's never a right time to buy a computer," says Bob Neuf, owner of Mega Plus Systems in suburban St. Louis. "If you can buy it, then it's really obsolete."
For the user, that makes the already agonizing decisions on how much capacity and what brand to purchase even tougher. For the middleman, though, a mistake in ordering can cost more than regret.
"Two weeks could be devastating if you're ordering in any kind of volume," says Neuf. His small company assembles computers for clients with special uses.
He may stock, for example, processors that run at 133 MHz. Before he has the chance to assemble and deliver a system that uses such a processor, the price may fall $50. He'll have to lower his price on the component that he's already paid for.
"You have to prepare for change," agrees Michael Northway, a technician at PC Systems, another small company based in the St. Louis area. "We can cope, but those that aren't changing fast are dying quickly."
For giant computer retailers like Computer City, which has 104 stores, there's less risk of getting caught with overpriced inventory. Most computer and component manufacturers protect their high-volume customers with price guarantees.
But even the national chains have to stay nimble. Jim Hamilton, vice president of merchandising at Computer City, said the industry is debating what comes next for the home computer buyer.
"Will it be a TV set, or a box on top of the TV or still a desktop?" he asked. "We try to design stores and foster vendor relationships for whatever is coming.
"DVD (digital versatile disc, a technology that could supplant the compact disc) is coming this fall. Audio-video capabilities will play a major role (in the future of computers)."
That's part of the answer to an obvious question regarding the souped-up personal computer: What is the home or small-business user doing with all this firepower?
"Two to three years ago, personal computers were used mainly for word processing and spreadsheets," says Peter Andrew, a technology hardware analyst at the A.G. Edwards & Sons brokerage firm in St. Louis. "Now they're being used for faxing, video conferencing and surfing the Internet."
The World Wide Web, with its links to multi-media sites on the Internet, entices surfers into more technology. Downloading video clips of the Budweiser hydroplane or viewing rotating three-dimensional shots of a new car or listening to a far-away radio station through an Internet connection all require lots of memory. And greater speed, both in the processor and the modem, is desirable if not essential.
Intel is working on processors that can handle more multi-media functions. By next year, Andrew said, such processors will reduce some of the multi-media load on other parts of the computer system.
The industry is closely watching sales of Gateway 2000's Destination. Gateway is a manufacturer and direct seller of computers; its products are not in stores.
Gateway introduced Destination in April. It's a well-endowed computer with a high-resolution 31-inch monitor - the first major hybrid of computer and television.
Brookwood of Dataquest said the $3,800 price tag on Destination confines it to a niche market. He doesn't expect huge sales figures.
"Vendors try to keep things in the range of $1,500 to $2,000," says Brookwood. "That's known as the sweet spot of the market."
So if declines in component prices bring the cost of a computer down - and models that were considered up to date last fall now sell for about $1,100 - manufacturers and retailers try to sell up.
Best Buy, for example, a large electronics chain that has more than one-third of its sales in computer products, started "a major training initiative designed to direct salespeople in the ways of upselling and add-on suggestion," according to a recent report by Dain Bosworth Inc.
It's no wonder. The same report says Best Buy's margins on personal computers are in the mid-single digits. The company wants to replace some of that business with more profitable sales of appliances.
The CD-ROM drive is another area where falling prices are accompanying faster speeds. The transfer of data to the computer from the CD-ROM - whether it be a program or entries from an electronic encyclopedia or multi-media images for a game - is faster and smoother with greater speed.
A year ago, Blackwood says, four-speed CD-ROMs retailed for $150-$200. Now they can be found on sale for $50 and eight-speed drives can be had for $169, he said. In the meantime, we're passing through the era of six-speed drives.
"This is another example of the vendors trying to maintain price points," Blackwood says.
It's the decline in the price of DRAM, however, that's done the most to fuel the dramatic decrease in price and increase in power of today's computers. While the trend is down sharply over the last two decades, prices for the memory were essentially flat from mid-1992 through 1995, according to Jim Handy, who follows that side of the business for Dataquest.
The Japanese, who make about half the world's DRAM chips, he says, held prices steady for that period. The changes in prices for U.S. buyers were mainly due to currency fluctuations.
An increase in capacity of chip manufacturers led to an oversupply, which led to the sharp price cuts early this year. Future reductions will probably be less dramatic, Handy said, but are inevitable. A year from now, he said, personal computers with 32 megs of DRAM will probably be the most popular.
While manufacturers and retailers slug it out in the highly competitive market for home users, the industry may be pleasantly surprised by the strength of the corporate market. That's the view of A.G. Edwards' Andrew, who said most businesses are still using computers with 386 and 486 processors, which are pre-Pentium levels.
"Every three to four years, the corporate users tend to upgrade," Andrew says.
Buyers for home use upgrade more frequently. For them, the experts say in effect, hold on and enjoy the ride. The capacity for memory and speed will keep increasing.
"There's no end in site," Andrew says. "The technology snowballs on itself."
Neither Blackwood nor he has any doubt that software designers will find new applications for the increased power.
"The game and software folks are just now figuring out what to do with all that extra memory," Blackwood says. "When DRAM was high-priced, that precluded certain advances. Now these applications will be more fun to build and more fun to use."
The whole cycle keeps going, he said, as long as the industry can get consumers to want more and more from their computers. They don't wear out, so it's a matter of creating demand.
"If people want to replace one from two or three years ago and keep upgrading, manufacturers all along the food chain win big," Blackwood adds. "The software developers win, too, and so do the consumers, who keep getting more value."
But if people start saying, "My two-year-old machine is good enough," then the industry will be in trouble, he says.