Henry Douglas, a computer networking specialist for the US government, could replace his home PC with one that's 10 times as powerful and half as expensive as the desktop he bought in 1996.
He's not doing so, and his reluctance is a reason computer prices fell 38 percent the first three months of the year, based on Labor Department data. "There's no pressing need for me to upgrade for what I do at home, which is surfing the Web," said Douglas, 50, outside a CompUSA store in Morrow, Georgia, near Atlanta. "And if I were, I wouldn't buy it here."
Douglas said he'll make his next purchase from a "white box maker," a shop that would charge as little as US$375 to replace his computer with one that has a 700 megahertz chip, seven times the speed of his present PC. That spells more competition for Dell Computer Corp, Compaq Computer Corp, Gateway Inc, and Hewlett-Packard Co, which already are slashing prices.
PC sales in the US fell by 3.5 percent to 11 million units in the first three months of the year compared with a year earlier, according to the research firm Gartner Dataquest. While computers are faster and capable of handling more tasks, many people can get by without the extra horsepower, analysts say.
"Most of the mainstream market won't see the difference even though you could argue they're not paying a huge premium for it," said Jim Waggoner, director of research at Sands Brothers & Co, a New York-based investment-services firm.
Computer makers tell a different story. They blame a slowing US economy. Compaq said earlier this month that PC sales wouldn't rebound until consumers became more optimistic. In the meantime, they're slashing prices to woo would-be buyers.
Average selling prices in the US for desktop PCs have declined to an estimated US$1,045 this year from US$2,034 in 1995, Morgan Stanley Dean Witter analyst Gillian Munson said in a recent research report.
Some home PCs are being advertised at hundreds of dollars less. Dell's least expensive PC, the Dimension L, starts at US$679, an offer that includes 20 gigabytes of hard-disk space, 128 megabytes of RAM, a 700 megahertz CPU, a 15-inch monitor and free ground shipping.
The companies have some leeway because their parts suppliers are also cutting prices.
Intel Corp is charging less for its new Pentium 4 processor to speed its adoption and compete with rival Advanced Micro Devices Inc, which this week introduced a lineup of new chips for laptops.
Still, the lack of a pickup in buying has eroded profits and forced the computer makers to eliminate thousands of jobs this year.
"A lot of the price cuts are coming out of the hides of the PC makers," said analyst Eric Ross at Thomas Weisel Partners in San Francisco.
A rebound in consumer confidence alone may not reverse their fortunes. While the University of Michigan's consumer sentiment index rose in May to 92.6, the highest in four months, some analysts and consumers said there's still no imperative to upgrade home PCs, even at reduced prices.
"Until the consumer is in need of an upgrade or just wants to waste a lot of money, you probably don't have a customer," even at PC prices as low as US$500, said Waggoner.
Computers are also competing for consumers' dollars with more electronic gadgets such as handheld organizers, digital cameras and MP3 music players, devices that offer some of the functions found on PCs, Waggoner said.
Computers were more readily upgraded in the 1990s because technological advances were much more noticeable and new software packages, such as the Windows 95 operating system, enticed buyers, he said.
Computer makers are holding out some hope that Microsoft Corp's Windows XP, which is being touted as the company's biggest upgrade to its PC operating system since 1995, will help reverse the sales slide after it's released on Oct. 25. Dell said this month it expects sales to businesses to improve in the second quarter next year as Windows XP drives PC replacements.
Slowing business investment in capital equipment has also been part of the problem and one of the main reasons cited by the Federal Reserve for enacting five interest-rate reductions so far this year. Corporate spending on equipment and software fell at a 2.1 percent rate in the first three months of the year, after dropping at a 3.3 percent pace in the fourth quarter of 2000, according to the Commerce Department.
Corporate orders, which have historically accounted for about 60 percent of the PC industry's sales, now make up just about 30 percent, according to Thomas Weisel's Ross. Businesses haven't had good reason to return to the PC market since making purchases late in 1999 to get ready for the year 2000.
"I think XP will be a big deal," Ross said. "If you're planning on upgrading, it's a good time to start pricing things out to be buying in the second half of the year." People such as James Stewart may need more convincing.
The 47-year-old father of four was shopping at the Morrow CompUSA for a keyboard his one-year-old had "banged up pretty good." He likens his decision to sit tight with his 1999 IBM Aptiva model to the reason he's still driving his silver 1997 Ford Taurus.
"You see that car right there?" Stewart said. "That's paid off and I'm not buying another until it just about falls apart."
"You could say the same thing for my IBM."
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