Dude, don't assume you're getting a Dell this holiday season.
In what is shaping up to be one of the most competitive seasons yet for personal computers, many PC makers are dropping prices to new lows. Eager to salvage the most important selling period of the year, big names like International Business Machines Inc. and Hewlett-Packard Co., which usually cater to the higher-end market, are going squarely after low-price leader Dell Computer Corp. Lesser-known brands, meanwhile, are dropping their already-low prices even further.
All of this raises a question for consumers: Which if any of these computers are worth buying? Most of the lower-priced machines, including those from IBM and H-P, have decent storage capacity and can play CDs but lack some of the trendiest features, such as the ability to burn CDs or watch DVDs. They also don't come with built-in wireless capacity, although most of them have a slot for the necessary hardware that costs extra.
But teaser prices of these basic machines have never been lower. H-P and eMachines Inc. have both rolled out models for $399 (in H-P's case, that's after rebates), slashing as much as $100 off their previous best prices. Worried about being left out in the cold this Christmas, Gateway Inc. just last week announced its own $399 desktop. Still too much money? Microtel Computer Systems Inc. is selling a bare-bones PC for $199.
Laptop prices, too, are swooning. IBM's ThinkPad notebooks now go for about $950, after promotions, down from more than $1,000. H-P, meanwhile, has cut prices for its new H-P Compaq Evo to $899; just several months ago older Evo models were selling for about $1,100.
It used to be that Dell was mostly alone in this lower-price retail niche. But upheaval in the tech world has created some new competition. Desperate for sales, H-P, IBM and others are now piling in.
While prices of PCs have long been competitive, computer makers are now hungrier than usual. For the first time since 1985, shipments of PCs dropped last year, by 4 percent. This year hasn't been much better. The numbers were off again, by 0.4 percent in the first six months, says research firm Gartner Inc. Meanwhile, with their stock prices struggling, computer makers have had to shutter factories and slash thousands of jobs.
Part of the problem is that consumers are keeping a particularly close eye on their wallets. In years past, computer companies could pull in new customers by pointing to new whiz-bang features — last year, it was built-in CD burners and Microsoft Corp.'s new operating system, Windows XP. But such new leaps are scarce this time around. That leaves computer makers with but one option: drop prices.
"This is not a year where people, all of a sudden, are willing to pay a premium for their computers," says David D'Arezzo, executive vice president of merchandising at Office Depot Inc. Another major consumer-electronics chain, Circuit City Stores Inc., said Tuesday it would report losses in the third quarter due to slow sales of cell phones and other devices.
So what do you get for these low prices? The good news is that many of the cheaper desktop PCs and laptops are fast enough and have enough memory for everyday computing tasks. You can easily store documents, send e-mail and surf the Internet. Some even come with a few bonus features. The H-P Compaq Presario 6300US, for example, has several ports where you can plug in external devices, from digital cameras to digital music players. With the $399 Gateway 300S desktop, you can record your own CDs.
But there are significant drawbacks as well. If you like to store a lot of digital pictures on your computer or play heavy-duty video games, you'll need a faster processor and more memory than you get with this crop of machines. Even the $399 PCs use cheaper Intel chips, the Celeron, rather than the higher-end Pentium. And some analysts say 128 megabytes of memory, which is what these computers have, aren't enough; they recommend upgrading to 256 megabytes.
With most of the bargain machines, you'll also miss out on a lot of the features — including DVD players and CD burners — that are becoming standard on computers priced just a couple of hundred dollars higher. Internet access? Don't be so sure. The Microtel SYSMAR710 computer, which sells for $199, doesn't come with a built-in modem for dial-up access. (It does, however, have an Ethernet port for a high-speed Internet connection.) In addition, most of the PC deals don't include a monitor. If you want to add your own, prices start at about $100. But for those inclined to build their PCs piece by piece, analysts say the cost savings are generally not worth the time investment.
One lower-priced PC that gives you something beyond the basics is Dell's Dimension 2300. For around $599, it comes with a monitor, a chip that's faster than average, and six months of free Internet service. (The Dimension is the only desktop PC cited in this story that includes a monitor for the same price.)
Another thing to keep in mind: When prices are similar (such as the cluster of PCs around $399), there's an argument to be made for going with a bigger name. Those companies often offer better service plans than the no-name brands.
Will the price cut be enough to jumpstart sales? Most households already own one computer. The industry's hope is that the lower prices will entice them to buy a second or even a third one.
The first round of sales data won't be out until early next year. But already, some analysts are skeptical the lower prices will be enough to neutralize consumer fears about the direction of the economy. Walter Winnitzki, an analyst at First Albany Corp., predicts a muted holiday sales season. "Don't go fishing when the fish aren't biting," he says.