Sales of personal computers didn't live up to expectations over the summer, and now analysts predict shoppers will cut spending even more drastically in the all-important holiday quarter.
So far, PC prices appear to be holding steady. But buyers may get better deals soon as computer companies try to avoid getting stuck with a pile of unsold inventory on Dec. 31.
Analyst Roger Kay of Endpoint Technologies said the unofficial start date for holiday PC promotions has crept earlier in recent years. This year, Kay said, computer makers are feeling panicky and wondering if they'll even make it through October without slashing prices.
"People with a lot of money are still going to come out and buy whatever they want," Kay said. "But there's a whole big pack of folks in the middle that are going to be looking at trade-offs."
PC makers generally reap thin profit margins, so don't expect prices to drop precipitously. In addition to whatever price cuts they do make, companies also are likely to offer more package deals that include free software or hardware add-ons to make more expensive machines look like a better deal. They may also rely on the age-old practice of luring shoppers with a low-end, cheaper configuration, but try hard to up-sell pricier, more powerful machines.
Four of the top PC makers, Dell Inc., Hewlett-Packard Co., Acer Inc. and Lenovo Group Ltd., wouldn't comment on prices or new products set to launch in coming months. HP's marketing efforts have focused recently on the TouchSmart line, touch-screen PCs that range from $1,300 to more than $2,000. The No. 3 U.S. computer maker, Apple Inc., already unveiled its holiday season lineup, with only modest price cuts.
Complicating predictions about PC price cuts is the rise of "netbooks" — cheap, compact laptops meant for Web surfing, without the power and features of many full-priced notebooks. Many netbooks offer a choice between an open-source operating system and Windows XP — another possible point in the small devices' favor now that XP has all but been replaced by the less popular Windows Vista on full-featured consumer PCs.
Major PC makers and smaller vendors have added at least one netbook to their current lines, at lower prices than even the most basic laptops. Most cost less than $500; Acer, which sells some Aspire models for well under $400, said it plans to be very aggressive in setting low prices for its netbooks.
Richard Klugman, a consumer electronics analyst for New York-based Majestic Research, said shoppers spent dramatically less on gadgets in September, an early predictor of grim holiday sales. Still, he predicted some items, netbooks included, will stay hot no matter how much the U.S. economy cools.
The netbooks trend could help PC makers keep unit volumes steady during the holiday shopping season, even if it means taking a hit on revenue and profit margins. It could also backfire by diminishing the appeal of regular laptops and desktops.
PC makers tend to see netbooks as a secondary computer for households that have at least one powerful, feature-rich PC. But that logic comes into question as the number of movies, music and applications that can be accessed through a Web browser grows.
Stephen Baker, an analyst for market researcher NPD Group, said netbooks are the "wild card" of the holiday season, but that ultimately, PC makers won't push them to the detriment of the more profitable computers they sell.
Baker said he thinks the problem for PC makers this year isn't how much to cut prices or push low-end netbooks to appeal to budget-conscious shoppers — it's whether such people will walk into the store in the first place.
"We're all kind of sitting on pins and needles wondering," said Mark Hill, Acer's general manager for the U.S.
Even so, Hill said Acer isn't revising its strategy for prices or marketing. Acer isn't convinced that sales of PCs are as likely to be curtailed as purchases of other consumer electronics during tough economic times.
"Is the PC space really discretionary spending, or are people buying a personal computer because they need one for managing finances (or) continuing their education?" Hill said. "I think we'll still continue to see people invest in themselves."