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Computer Firms Race to Cut Prices on Older Machines

By Elizabeth Corcoran
The Washington Post

Following the prices of personal computers these days is a bit like watching a ski slalom race. Top computer makers have been whizzing past one another in their rush to cut prices.

Students buying machines for back-to-school use are finding they can afford an ever-wider collection of features such as built-in audio systems and units that play optical data disks known as CD-ROMs.

Some models once far too costly for these buyers are going for about $1,000. And "what you can buy for less than $2,000 is astonishing," said Richard Shaffer, who heads a research firm called Technologic Partners in New York.

Wednesday, International Business Machines Corp. joined the crowd, trimming its prices an average of 18 percent on a number of its desktop models aimed at the business market. A week ago, Compaq Computer Corp. grabbed attention by promising a similar range of cuts, also on models aimed at the business market.

Both companies plan to put out new lines of "multimedia" personal computers in the early autumn, in time for the industry's biggest selling time, the year-end holiday season. These machines can offer sound, graphics and video images.

Packard Bell Electronics Inc. already has announced its fall multimedia model, which will include a CD-ROM player, stereo sound and a telephone answering machine. The machines will start at $1,000 (without monitors) and range up to $3,000.

Those brands are all built to the standard pioneered by IBM and rely on software by Microsoft Corp. Also feeling the price pressure is Apple Computer Inc., which sells the rival Macintosh line. Apple is trimming prices on its families of computers in a bid to remain competitive.

When new models appear, manufacturers often wind up dramatically cutting prices on older generations of machines so as to draw down warehouse stocks. Apple's model 150 PowerBook introduced in July, for instance, is priced at about $1,470, but it is based on a 1991 model that sold for about $4,500.

Also helping to drive down prices have been reductions in manufacturers' costs. Microprocessor king Intel Corp., which makes the chips that serve as the brains of the majority of personal computers, slashed prices twice this summer on its two top lines, the "486" and Pentium families.

The chipmaker plans to lower prices again in November as it scrambles to keep ahead of competitors threatening to encroach on its chip market. In hopes of convincing consumers that they should buy sophisticated PCs that rely on Pentium chips, Intel will spend $80 million to advertise in consumer magazines such as Rolling Stone and Working Mother, and on the Comedy Central cable TV network.

PC prices have always been on a downward curve, as the market grew and economies of scale kicked in. But the war began in earnest in 1992, when Compaq Computer slashed prices and reorganized its business to run on far leaner profit margins than it - or other big manufacturers - had in the past. And by grabbing a larger share of the market, Compaq has continued to hold down prices.

Most analysts say there is no ideal moment to snatch up a new computer. "It's always a great time to buy," said Seymour Merrin, an industry consultant based in Palo Alto, Calif. "The value consumers are getting in PCs is unreal."

Others argue for a bit of patience. "I'd wait until a little past September" before buying, said J. William Gurley, an analyst at First Boston in New York. At that point, consumers will "get older stuff at a cheaper price," he said.

And there will be a new range of products targeted at consumers. "I think we're a month away from some really nice new products," Gurley said.

What today seems like "last year's model" to techno-elitists is still an impressive machine for many first-time buyers. And what once was seen as a hopelessly expensive system, such as a 486 computer with a heartbeat of 66 million cycles per second, is now one of the most popular items on computer buyers' lists.